Inflation over the December quarter has marginally beaten economists forecasts thanks to a rise in the cost of tobacco, domestic holiday expenses and fruit.
The Australian Bureau of Statistics released its consumer price index data on Wednesday, showing a 1.8 per cent rise in inflation in the 12 months to December 2018 and a 0.5 per cent rise since the September 2018 quarter.
Economists predicted inflation would slow to 1.7 per cent on a year-on-year measure and 0.4 per cent over the December quarter. This is the first time in eight quarters that the CPI has beaten expectations.
“Today’s data confirms inflationary pressures in Australian remain below the RBA’s 2-3 per cent target band,” said Ernst and Young chief economist Jo Masters.
“The RBA is likely to downgrade its growth forecasts in the Statement on Monetary Policy next week, although we continue to expect the RBA to hold policy unchanged until well into next year,” she said.
Low petrol prices and declining prices for audio visual and computing equipment, wine and telecommunications equipment and services weighed on inflation growth over the December quarter.
“The data again highlighted the challenges being faced by the retail sector, with clothing and footwear prices and furniture and furnishing both in outright deflation in annual terms. Telecommunication and computing equipment also continue to see prices falling. Ongoing disruption suggest this trend has further to run,” said Ms Masters.
ABS chief economist Bruce Hockman said: “Annual growth in the CPI remains below 2 per cent in the December quarter 2018, with annual growth in tradeables inflation of just 0.6 per cent, while non-tradables inflation rose 2.4 per cent.”
The Australian dollar jumped from US71.5 cents to US72.08 cents just before the figures came out. It had since dropped back down to US71.7 cents.
Wednesday’s inflation result comes in an environment of deteriorating business conditions around Australia, which suffered their biggest monthly fall since the GFC on Tuesday, according to National Australia Bank.
The CPI release is the last economic indicator the Reserve Bank would see before it meets on Tuesday next week and releases its statement on monetary policy.
Article appeared in The Australian Financial Review on 30 January 2019.
Article written by Tim Boyd.