Consumer Price Index - Inflation: Where Art Thou?

• Headline CPI rose just 0.4% in the September quarter, which was slightly below consensus expectations for a 0.5% increase. It indicates that inflation remains low. The annual pace of headline inflation slowed to 1.9%, from 2.1% in the June quarter. 

 

• More relevant for the Reserve Bank of Australia (RBA) are the underlying rates of inflation, the trimmed mean and the weighted median. The average of these two underlying measures rose 0.3% in the September quarter, the smallest increase since the March quarter 2016.

 

• The annual rate of underlying inflation fell to 1.7% in the September quarter, from 1.8% in the June quarter. This is the lowest pace of underlying inflation in 1½ years. The annual pace of underlying inflation fell further below the RBA’s 2-3% per annum target inflation band.

 

• In the September quarter, price increases were driven by international holiday travel & accommodation, domestic holiday travel & accommodation, tobacco and automotive fuel. These price increases were tempered by declining prices for child care (-11.8%) and telecommunications equipment & services          (-1.5%).

 

• We do not expect inflation will hit the middle of the RBA’s target band over the medium term. Low inflation will allow the RBA to leave interest rates unchanged for an extended period.

 

Please see the attached report for more information.

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