Consumer Price Index Inflation Still in the Picture

Transcription

1 Data Snapshot CPI - Wednesday July Wednesday, July Consumer Price Index Inflation Still in the Picture The annual rate of headline inflation lifted to.% in the June quarter, the highest in ½ years. Headline inflation is now touching the top of the RBA s to % per annum target band. For the quarter, headline CPI rose.%. Underlying CPI, the measure more closely watched by the RBA, rose.7% in the June quarter. Annual underlying inflation, at.%, was still within the RBA s target, but towards the top half of its to % band. Both underlying and headline inflation were consistent with the RBA s forecasts, and suggesting the RBA will continue with its rhetoric of stability in interest rates. Despite this, annual underlying inflation was a touch above market and our own expectations. Today s data serves as a reminder that inflation is not benign. It gives the RBA little breathing room if inflation surprises to the upside, or if the Australian dollar suddenly depreciates unexpectedly. It also cements our view that the RBA is done cutting rates. We expect that soft wage growth and a resilient Australian dollar should keep inflation within the RBA s -% inflation target band. However, with inflation close to the top of the RBA s target band and an economic recovery underway, the door is open for a rate hike in early. 6 Consumer Prices (annual % change) Headline CPI Underlying CPI 6 Consumer Price Index (annual % change) Non-Tradables or Domestic Inflation Tradables or Imported Inflation RBA -%pa Inflation Target Band Mar- Mar- Mar- Mar- Mar- - Mar- Mar- Mar- Mar- Mar- - In the June quarter headline inflation was largely in line with our and consensus expectations. Headline CPI rose by.% in the June quarter, which took the annual rate of inflation up to.%,

2 Data Snapshot CPI - Wednesday July the highest in ½ years. Headline inflation is now touching the top of the RBA s to per cent target band. While the outcome for headline inflation is on the high side, the RBA s focus is on the mediumterm outlook for inflation. As a result, the RBA will choose to focus on the underlying rate of inflation (the average of trimmed mean and weighted median measures), which strips out volatile items. Underlying CPI was also in line with expectations for the quarter, rising.7%. However, due to an upward revision to the March quarter (to.6% from a more benign.% previously), annual underlying inflation was a touch higher than our expectations in the June quarter, at.%. Both headline and underlying inflation were roughly in line with the RBA s forecasts in the latest Statement of Monetary Policy of.% and.7%, respectively. Tradables and non-tradables inflation continued to converge in the June quarter. Tradables inflation includes prices of goods and services which are imported or compete with imported goods and services. Tradables CPI rose.6% in the June quarter and.9% in the year, the strongest annual rate in almost years. It compares to annual tradables inflation of -.7% in the year to the June quarter. The lift in tradables inflation likely reflects the delayed impact from the depreciation in the Australian dollar since early. However, the recent resilience of the AUD suggests there is now a smaller risk that tradables inflation will remain elevated in coming quarters. Non-tradables or domestic prices rose just.% in the June quarter, the smallest increase in a year, suggesting that soft wage growth is beginning to limit price gains. The annual rate of nontradables inflation remained elevated, but steady, at.% in the year to June quarter. Elevated domestic inflation is in part due to structural factors, including the ageing population. High healthcare and education costs are contributing to domestic price pressures. Groups Analysis Health and tobacco were among the groups that recorded the biggest price rises in the June quarter. June quarter, % Consumer Prices Quarterly change Annual change Food and non-alcoholic beverages.. Alcohol and tobacco.6 7. Clothing and footwear. -.6 Housing..9 Furnishings, household equipment and services.. Health.9.9 Transport Communication Recreation and culture -.. Education.. Insurance and Financial Services.. Total CPI.. The largest price increase for the quarter was in health (with a.9% increase). This was driven by a strong increase in medical and hospital services, reflecting annual health insurance premium increases, which occur in Q each year and indexation to the Private Health Insurance rebate from

3 Data Snapshot CPI - Wednesday July st April. Prices for pharmaceutical products, however, fell.9%, reflecting the annual pattern where subsidies kick in for the Pharmaceutical Benefits Scheme safety net as a greater proportion of consumers reach the threshold (compared to the previous quarter). Tobacco prices rose.% in the June quarter. This was partly attributed to the flow-on effects from the Federal excise tax increase from March. Another large contribution came from housing, with the cost of new dwelling purchase by owner-occupiers rising.6% in the June quarter. Tempering the rise in inflation for the June quarter were declining prices for domestic holiday travel and accommodation and automotive fuel. Domestic holiday travel and accommodation fell.% in the June quarter. Automotive fuel prices fell.7% in the June quarter reflecting the stronger Australian dollar over the quarter. The Aussie dollar gained.% versus the US dollar and.7% in trade-weighted terms over the June quarter. Inflation Rates (Annual, % Change) Inflation by Capital City (Annual % Change, Jun Quarter ) Medical & Hospitcal Services Health Headline CPI Jun- Jun-6 Jun-9 Jun- Jun- Syd Melb Bris Adel Perth Hob Dar Can Aust States Analysis: For the June quarter, inflation was strongest in Perth (.%), then Darwin (.7%), followed by Melbourne and Brisbane (both.6%), then Sydney, Hobart and Adelaide (all at.%) and Canberra (.%). In the year to the June quarter, more of the capital cities had headline inflation above the RBA s - % target band. These included Perth (.%), Darwin (.%), Brisbane (.%), Melbourne (.%) and Adelaide (.%). Inflation was more contained in the year to the June quarter in Sydney (.%) and Hobart (.%) and in Canberra inflation slowed to a benign.%. Outlook Today s data was close to the RBA s forecasts suggesting the RBA is unlikely to change its rhetoric of stability in interest rates. However, both headline and underlying inflation has remained in the upper part of the RBA s target band and serves as a reminder that inflation is not benign. It gives the RBA little breathing room if inflation surprises to the upside, or if the Australian dollar

4 Data Snapshot CPI - Wednesday July suddenly depreciates unexpectedly. It also cements our view that the RBA is done cutting rates. We expect that soft wage growth and a resilient Australian dollar should keep inflation within the target band. However, with inflation close to the top of the RBA s target band and an economic recovery underway, the door is open for a rate hike in early. Jo Horton & Janu Chan, Senior Economists Ph: --9 &

5 Data Snapshot CPI - Wednesday July Contact Listing Chief Economist Senior Economist Senior Economist Besa Deda Hans Kunnen Josephine Horton dedab@stgeorge.com.au kunnenh@stgeorge.com.au hortonj@stgeorge.com.au () () () 6696 Senior Economist State Manager Janu Chan Mark Goldsmith chanj@stgeorge.com.au goldsmithm@banksa.com.au () 9 () 97 The information contained in this report (.the Information.) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom BankSA has a contract to supply Information, the supply of the Information is made under that contract and BankSA s agreed terms of supply apply. BankSA does not represent or guarantee that the Information is accurate or free from errors or omissions and BankSA disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to BankSA products and details are available. BankSA or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. BankSA owns copyright in the information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of BankSA. Any unauthorized use or dissemination is prohibited. Neither BankSA- A Division of Westpac Banking Corporation ABN 7 7 AFSL 7 ACL 7, nor any of Westpac's subsidiaries or affiliates shall be liable for the message if altered, changed or falsified.