What does the latest CPI tell us?

CPI_trolley

The Australian Bureau of Statistics (ABS) this week released the quarterly Consumer Price Index data for the September quarter 2015.

The headline consumer inflation remained weak, at only 1.5% over the year to September. Prices for tradeable goods and services (i.e. those that can be imported, accounting for about 40% of the total) were still 0.3% lower than a year ago.

However, recent results indicate prices for tradeables have slowly crept up, having increased by 1.5% so far in 2015. This reflected the further depreciation of the Australian dollar since September 2014 and the effects may continue to flow through gradually over the coming year.

Meanwhile, price growth for non-tradeable goods and services (i.e. those that cannot be imported, accounting for 60% of the CPI basket) was stable, at 2.6% p.a. in Q3. These prices are heavily linked to local wage growth, which reached a historical low of 2.3% p.a. in Q2 2015 and has helped keep a lid on price growth for a range of goods and services.

Chart: Annual growth in tradeable and non-tradeable goods & services (Source: ABS)

Chart: Annual growth in tradeable and non-tradeable goods & services (Source: ABS)

 

The most significant price increases in this quarter included:

  • a 4.6% q/q rise (+2.0% p.a.) in prices for international holiday travel and accommodation, reflecting the lower Australian dollar;
  • higher fruit (+8.2% q/q but still 3.8% lower than a year ago) prices; and
  • property rates and charges (+4.6% q/q; +4.6% p.a.).

On the other hand, prices fell in Q3 for vegetables (-5.9% q/q; -6.2% p.a.), telecommunication equipment and services (-2.0% q/q; -4.3% p.a.) and automotive fuel (-1.7% q/q; -9.8% p.a.).

The latest CPI results provide room for the RBA to cut the cash rate further, if it finds it necessary to further stimulate non-mining parts of the local economy. These sectors are showing some tentative signs of recovery since the beginning of 2015-16 financial year, as Ai Group’s PMI, PSI and PCI and other business survey results have indicated.

Keep an eye out for more information about the CPI in our Economics Weekly on Friday (30 October edition), together with an updated factsheet on the CPI.

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Yi Ming Hu
Yi Ming joined Ai Group as an Economist in 2013. He has broad experience covering economics and financial markets, having previously worked as an economist for the Reserve Bank. Yi Ming holds a first-class Honours Degree in Commerce from the University of Melbourne and is a CFA charterholder and a CPA.
Yi Ming Hu

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