Inflation expectations fall

From MI:

The Melbourne Institute consumer expected inflation rate (30-per-cent trimmed mean measure) fell by 0.7 percentage points to 3.4 per cent in December from 4.1 per cent in November. The underlying distribution of responses in Table 2 shows a considerable rise in the cluster of responses around expected price changes of 0-2 per cent (4.5 percentage points) and a considerable drop in the cluster of responses around expected price changes of 10 per cent and above (5.4 percentage points).

The distribution of responses in Table 2 revealed that the proportion of respondents expecting increases in prices continues to fall, to 70.9 per cent in December from 73.2 per cent in November and 75.2 per cent in October. The proportion anticipating no price change increased further to 22.0 per cent from 20.4 per cent in November. The proportion of respondents anticipating falls in prices rose by a percentage point to 2.5 per cent in December.

The proportion of survey respondents expecting annual inflation to fall within the RBA target band fell again to 17.9 per cent from 19.0 per cent in November. This result is well below the 12-month average of 24.4 per cent.

Table 3 shows that the proportion of respondents (excluding the ‘don’t know’s) expecting the inflation rate to fall within the 0-5 per cent range rose to 77.6 per cent in December from 73.1 per cent in November. This is mainly due to the rise in the cluster of responses around expected price changes of 0-2 per cent. The weighted mean of responses within the 0-5 per cent range fell by 0.1 percentage points in December to 2.6 per cent, and it has been stable around this level since June 2014.