As summarised earlier by Houses and Holes, the Australian Bureau of Statistics (ABS) this morning released the Consumer Price Index (CPI) data for the March quarter 0f 2012, which showed an absence of inflationary pressures in the Australian economy:
According to the ABS, headline CPI rose by only 0.5% in the June quarter, which follows the March 0.1% rise. You can see from the below chart that inflationary pressures have clearly subsided after relatively strong price growth in mid-2011:
On an annual basis, headline CPI has fallen to only 1.2%, which is well below the Reserve Bank of Australia’s (RBA) target of 2% to 3% growth over the medium term:
Looking at the core components, price rises in the June quarter were recorded everywhere except Recreation & Culture and Communications, where price falls were recorded:
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 RBA, the trimmed mean and weighted median measures have continued to trend down since 2008, growing by only 0.5%/0.7% (trimmed mean / weighted median) in the June quarter and by only 2.0%/1.9% (trimmed mean / weighted median) over the year – well within the RBA’s inflation target (see below charts).
In summary, inflationary pressures have vanished from the Australian economy, potentially opening to door to further cuts to official interest rates.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
