As summarised earlier by Houses and Holes, the Australian Bureau of Statistics (ABS) this morning released the Consumer Price Index (CPI) data for the December quarter 0f 2012, which registered a reduction in inflationary pressures across the Australian economy, coming in well below consensus:
According to the ABS, headline CPI rose by just 0.2% in the December quarter, which follows the September’s 1.4% rise on the back of large increases in electricity and utilities prices following the introduction of the carbon tax. You can also see from the below chart that inflationary pressures have receded following the steady build-up over the three quarters to September 2012:
On an annual basis, headline CPI has risen to 2.2% from 2.0% in the September quarter, which is still within the Reserve Bank of Australia’s (RBA) target of 2% to 3% growth over the medium term. Obviously, annual inflation was also affected by the one-off boost from the introduction of the carbon tax:
Looking at the core components, large price rises in the December quarter were recorded in communications and financial and insurance services. By contrast, significant falls were recorded in health and Furnishings, household equipment and services:
Finally, the ABS includes an ‘analytical series’, which provides alternative measures of underlying inflation in the economy. These measures – namely the trimmed mean and weighted median – aim not to measure the size of inflation (which is captured by the headline figure), but the breadth of price inflation across the basket of consumer goods and services.
The purpose of these measures is to exclude unusually large price movements (in both directions) of just a few of the subgroups, which may have quite an impact on the headline CPI. By excluding these outliers, you can get a feel for how widespread across the consumer basket inflation really is (see here for further details).
According to the ABS, the trimmed mean and weighted median measures rose by less than the headline figure, growing by only 0.6%/0.5% (trimmed mean / weighted median) in the December quarter and by 2.3%/2.3% (trimmed mean / weighted median) over the year – around the middle of the RBA’s inflation target (see below charts).
In summary, there appears to be a lack of inflationary pressures across the Australian economy, with the headline, trimmed mean and weighted median CPI measures all tracking well within the RBA’s target band.
unconventionaleconomist@hotmail.com
Debt deflation is on its way
What makes you say that?
Not suprising that inflation is still relatively low, with consumer confidence in the toilet, most discretionary sectors are very reluctant to raise prices.
However, inflation is clearly trending up since June 2012. Combined with the iron ore price rally and moderate house price increases in the year to December 2012, no further rate cuts are happening before August (probably November).
Things seem to be pointed that way: deflation in what you already own and inflation in what you still need to buy.
In other words: prices of stuff people bought on credit are going down while other things are getting more expensive.
The miracle of the CPI:
Useless crap we dont really need from China and other places is all getting cheaper – because it must, or nobody will buy it: Another brand new television for $200. A new laptop to replace the perfectly fine laptop you already have for $300.
Necessities like food and energy are being gouged for all they are worth – because they can, everyone must buy it: weekly groceries for $200. Monthly electricity bill is $300.
Cleverly weighted so one offsets the other completely, and everyone is happy. Right?
Is it possible that Australia has the beginnings of stagflation ?
It would seem power, gas etc… are all going up while junk we often buy is going down.
???
Your argument involves the divergence in tradeables to non-tradeables and somehow implies recession with overall inflation? The deflation in tradables and inflation in non-tradables has been happening for quite a while now and we’re still a few percentage points away from recession and are nowhere near the 4-5% inflation rate the RBA was happy with a few years ago.
It seems like you are missing something to complete your argument.
The clever reweighting recenly employed is the missing ingedient. I think they changed a lot of the weightings around 2009-2010? Perhaps more recently?
They also hide some ongoing essentials as percentages of percentages. Electricity is a good one to try and find in their basket. An essential that has risen in price by close to double digits, if not double digits, YOY, for the past 3 years.
Lies, damned lies… you know the rest.
So JJF, you are suggesting that the reweighting is done to produce a certain result, rather than to reflect changing consumption patterns?
I think most people would agree that reweighting is necessary to keep up with changing consumption patterns. I’d be interested to hear which components of the CPI basket you think have been unfairly reweighted.
Serious question, btw. I have looked at the ABS information, which is all open and available, but somewhat difficult to read (for me at least).
I think all the info on weighting and methodology in general is available at the link below, for those keen to read it.
6461.0 – Consumer Price Index: Concepts, Sources and Methods, 2011
Local government rates are they included in housing? My rates are trending up 7-8% YoY
Gas – up 8.3% YoY
Electricity rates up 5% plus the carbon tax 9.3%
Water up 10% YoY
Education fees for kids school up 6% YoY
Transport fees – public are up 5% YoY
That is for metro Perth but I am sure is mirrored for plenty of readers.
CPI as usual is a joke.
+1
All hidden in one small part of their basket, I believe, and weighted the crap out of.
It is necessary to do that to these essentials that are a significant portion of our regular weekly expenses, otherwise it may affect the CPI! Imagine that!
‘If It Wasn’t For The High Dollar……then inflation would be much higher. Tradable goods have actually been going through deflation in recent months, with non-tradables above target range for several years.’
http://1.static.australianindependentbusinessmedia.com.au/sites/default/files/styles/ak_graph/public/kohlersgraphs/2013/Jan/130123-inflation.png
From http://www.alankohler.com.au/
It’s easy. Inflation as a CPI measure shouldn’t really be measured as it is.
There’s plenty of reason why but really there’s two main big ones:
1) There’s things spent with disposable income and things that aren’t as disposable. Sadly the things that aren’t (electricity, housing, food, energy, etc) aren’t weighted correctly.
2) CPI affects the poor than the rich – inflation really is a tax on poorer wage earnings without wage bargaining power. Partly because of point 1 – i.e the poor have less luxury income and so they are affected more by non luxury inflation.
My problem is most people define their quality of life not by the fact that they can buy the latest phone or go on holidays but because they are blessed – they have the essentials to pursue higher level needs.
There’s heaps of others – some things can’t be produced with more people (i.e resources, land, etc) and so inflate despite the usual argument “more money because there’s more people”. For the poor this is a double whammy – more people and more money competing for the basic essentials.