Five facets of the inflation that fell to a 17-year low level



With the recent data out and Australian inflation easing to a 17-year low in April-June, the market odds for the interest rate cut have gone to a 50-50 ratio. The Consumer Price Index (CPI) has risen 0.4 per cent in the June quarter 2016 as per the latest Australian Bureau of Statistics (ABS) data post the fall of 0.2 per cent in the March quarter 2016. The headline CPI index otherwise surged 1.0 per cent through the year to the June quarter 2016 which indicates the weakest annual rise since the June quarter 1999. This is well below the Reserve Bank of Australia’s (RBA) target band of two to three per cent while many economists had expected the annual headline inflation rate of 1.1 per cent.


June Figures (Source: Australian Bureau of Statistics)

Seasonal price rise in medical and hospital services, and Automotive fuel at the top: As per the data, the price rises this quarter are observed for medical and hospital services with 4.2 per cent jump while the automotive fuel witnessed a 5.9 per cent jump. The medical and hospital services got a boost from the annual increase in Private Health Insurance (PHI) premiums that rise in the month of April every year. The surge in automotive fuel comes after the three consecutive quarterly falls with the rise steered by rise in unleaded, premium and ethanol fuels with oil prices increasing from a 12-year low level last quarter. Tobacco price rise was of the order of 2.1 per cent.

Domestic holiday travel and accommodation at the bottom: Steep fall in domestic holiday travel and accommodation by 3.7 per cent was noted owing to the off peak season for domestic holiday travel. Even price in motor vehicles and telecommunication equipment and services witnessed a blow of 1.3 per cent and 1.5 per cent, respectively.

Food prices took a U-turn while Education sector remained flat: Food prices dropped 0.3 per cent in the quarter and 0.1 per cent over the year which has been against the trend. The education group recorded no change this quarter.

Housing sector in the mid-way: The sector witnessed rise of 1.3 percent as opposed to 1.7 percent in March quarter. The main contributor to the rise is new dwelling purchase by owner-occupiers, which is up 1.9%. However, costs associated with buying rose 0.9 per cent in the quarter while there was a 0.2 per cent rise in rents.


All groups index points for the quarter (Source: Australian Bureau of Statistics)

Further dip expected in interest rates: Borrowing costs are already at a record-low of 1.75 percent and are expected to fall further at the back of the year on year 1 per cent rise in the consumer price index.

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