Australia’s headline inflation rate, the Consumer Price Index (CPI), rose to 2.1% for the year-ended March 2017, returning to the Reserve Bank of Australia’s target range. For the march Quarter, measured on a seasonally adjusted basis, inflation was a comfortable and within expectations 0.5%. The consequences of what amounts to a positive development include expectations it will reduce pressure on the RBA to sustain interest rates at their historic lows, should other indicators drive them towards a hike in official interest rates.
The chart below shows Australia’s quarterly and year-end inflation since March 2010.
To go straight to the dashboard and take a closer look at the data, click here.
The chart is notable for a couple of features, above all others. First, the four quarters at each end of the chart are both very stable, compared with the rest of the period. Second, Australia’s CPI is clearly on the rise. This is usually a sign that the economy is growing as the price increases reflect expanding demand for “scarce” resources. So provided this growth in the CPI remains with the RBA’s target band of between 2% and 3% per annum this should be a good sign for the economy.
The CPI at this level also eases pressure on the RBA to reduce interest rates. In large part this is because, as the chart below demonstrates, the underlying measures of inflation are largely stable and also within RBA bands.
To go straight to the dashboard and take a closer look at the data, click here.
As an example, when ‘volatile items’ are excluded from the measures, annualized inflation is a comfortable 1.5%.
In April, there was criticism of the CPI for failing its role as an indicator of the changing cost of living, because it ignores price changes in dwellings. The Commonwealth Bank of Australia’s senior economist, Gareth Aird, has suggested that the CPI therefore understates real inflation rates (the price and cost of living experience of the population) and as a result masks intergenerational inequalities.
