Inflation Remains Weak as Prices Rise only 0.6 per cent in the December quarter of 2017

By: Inais Black: February 10, 2018, Updated: January 21, 2019

The latest Australian Bureau of Statistics (ABS) figures reveal that the Consumer Price Index (CPI)* rose only 0.6% in the December quarter of 2017. This was below expectation and followed a rise of 0.6% in the September quarter of 2017.

The most significant price rises this quarter are automotive fuel (+10.4%), tobacco (+8.5%), domestic holiday travel and accommodation (+6.3%) and fruit (+9.3%).

These price rises were partially offset by falls in international holiday travel and accommodation (-1.7%), audio-visual and computing equipment (-3.5%) and telecommunication equipment and services (-1.4%).

The CPI rose to 1.8% through the year to the September quarter, rising further to 1.9% throughout the year to the December quarter of 2017. Chief Economist for the ABS, Bruce Hockman, said “While the annual CPI rose 1.9 per cent, annual inflation in most East Coast cities rose above 2.0 per cent, due in part to the strength in prices related to Housing. Softer economic conditions in Darwin and Perth have resulted in annual inflation remaining subdued at 1.0 and 0.8 per cent respectively.”

Varying responses by key economists were seen in the light of the media release. Economist Stephen Koukoulas, an advisor to the Prime Minister and Managing Director of Market Economics, tweeted this in response:

“Another qtr below target. Underlying looks like it’s decelerating RBA says “sorry folks” to the 730,000 people unemployed, 1.1 million underemployed & the 12 million lucky to get a 2% pay rise”.

However, chief IFM economist Alex Joiner tweeted that he thought that “CPI data slightly weaker than expected on headline and ‘core’ measures, unlikely to shift the RBA’s assessment of the inflation/wages environment materially at next week’s board meeting”.

In spite of differing opinions of what exactly the RBA will do at the next meeting, the Australian dollar did take a knock throughout the day due to the “slightly worse” CPI data.

*For those wondering, the Consumer Price Index (CPI) measures changes in the price level of the market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.

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