Headline inflation flatlines quarter on quarter
The Australian Consumer Price Index (CPI) missed expectations of a 0.2 per cent quarter on quarter rise as the March quarter drew to a close, instead showing flat headline inflation over the period and a fall in annual inflation to 1.3 per cent.
According to AMP capital economist, Shane Oliver, the true downside surprise came from weaker underlying inflation, which the Reserve Bank of Australia (RBA) used as their guide to fundamental price trends in the economy as it excluded volatile price changes.
“Underlying inflation, as measured by the trimmed mean and weighted median, averaged 0.2 per cent over the quarter and 1.4 per cent over the year which missed consensus expectations of 0.4 per cent quarter on quarter and 1.7 per cent year on year,” the economist said.
He predicted that the RBA would likely revise down its inflation forecasts, with inflation consistently tracking below the bank's two to three per cent target band.
The largest price rises for the March quarter came, unsurprisingly for the season, from education and medical services, with a lift in motor vehicle and food prices, particularly vegetables, also contributing. These were offset by price falls for fuel as petrol prices sharply declined and domestic and international holiday travel, again a seasonal effect.
“While the petrol price has since bounced back the lack of underlying pricing pressure in the economy is evident in pricing weakness across areas like clothing, rents, household equipment and services and communications,” Oliver said.
“The weakness in underlying inflation shows that businesses are still finding it challenging to lift prices in the face of ongoing spare capacity, intense competition and weak demand.”
The chart below tracks the Australian Bureau of Statistics Consumer Price Index for the three years to date.
Source: FE Analytics
AUTHOR
Hannah Wootton
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
