Inflation subdued in the June quarter 2016

The Consumer Price Index (CPI) rose 0.4 per cent in the June quarter 2016, according to the latest Australian Bureau of Statistics (ABS) figures.

The RBA will probably take this as a signal to cut the cash rate again next week, despite the fact that evidence is mounting that rate cutting at these low interest rate levels will not help much, and create a problem down the track. In fact we should ask if a 2-3% target for inflation is meaningful anymore. Worth reading Mark Carney, Governor, Bank of England comments on this subject. Low inflation appears to carry significant risks, and low interest rates do not help.

CPI-2016-JunThis follows a fall of 0.2 per cent in the March quarter 2016.

The most significant price rises this quarter are in medical and hospital services (+4.2 per cent), automotive fuel (+5.9 per cent) and tobacco (+2.1 per cent). These rises are partially offset by falls in domestic holiday travel and accommodation (–3.7 per cent), motor vehicles (–1.3 per cent) and telecommunication equipment and services (–1.5 per cent).

The increase of 4.2 per cent for medical and hospital services was driven by the annual increase in Private Health Insurance (PHI) premiums, which rise on 1 April every year.

The increase of 5.9 per cent for automotive fuel follows three consecutive quarterly falls, with the rise driven by increases in unleaded, premium and ethanol fuels, as world oil prices increased from a 12-year low last quarter.

The CPI rose 1.0 per cent through the year to the June quarter 2016. This is the weakest annual rise since the June quarter 1999.

There are interesting state variations, with Brisbane recording 1.5 per cent, and Darwin 0 per cent this time.

June-2106-State-CPI

 

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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