Data Snapshot: CPI - Inflation Tethered

Good afternoon,

 

  • Headline CPI rose 0.5% in the December quarter, which was slightly above consensus expectations for a 0.4% increase. Nonetheless, it indicates that inflation remains subdued. The annual pace of headline inflation slowed to 1.8% in the December quarter, from 1.9% in the previous quarter. 

 

  • The Reserve Bank of Australia (RBA) focuses on underlying inflation.  The average of the two underlying inflation measures rose 0.4% in the December quarter, after rising 0.4% in the September quarter.

 

  • The annual pace of underlying inflation held at 1.8% for the third consecutive quarter. It remains below the RBA’s 2-3% per annum target inflation band.

 

  • The low inflation environment is reflective of conditions in the labour market and retail sector. Wage growth is low and although the unemployment rate has declined over the past year, there remains spare capacity within the labour market. The retail sector also continues to be plagued by cost-cutting competitive pressures.

 

  • In the December quarter, price increases were driven by tobacco (9.4%), domestic holiday travel & accommodation (6.2%) and fruit (5.0%). The rise in CPI inflation was moderated by declining prices for automotive fuels           (-2.5%) and audio visual & computing equipment (-3.3%).

 

  • Underlying inflation remains below the RBA’s 2 to 3 % per annum target band, indicating inflation remains contained. We do not expect inflation to move to within the RBA’s band before 2020. Our inflation forecast profile leaves the RBA on the sidelines this year and next.

 

 

Please see the attached report for more information.

 



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Bank of Melbourne Morning Rep&hellip