Annual consumer price growth fell to its lowest level in three years, falling to 1.3% for the year-ended March 2015. Over the last decade, annual price growth has only fallen lower in June 2012 and September 2009 (both at 1.2%). The first period was the height of the GFC and the second was when the Australian Dollar was well above parity with the US Dollar. In 2015, there is no GFC (though Greek default has the world holding its breath), the Aussie is headed down to fair value and interest rates are at historic lows.
There are plenty of minds focussed on the national economy, trying to understand what is driving behaviours that include record investment in new housing stock and weak and slowing consumer prices growth, underpinned by an absence of confidence in the prospects of the domestic economy.
Using information from the FWPA Dashboard, the following information presents the key data.
The first of these shows the Consumer Price Index (CPI) from MQ’05 to MQ’15 on a quarterly and an annual basis.
For further details, go to the FWPA Data Dashboard.
This relatively long data series shows clear cycles. It also shows a trend that sees prices growth falling to roughly the same level at the end of each cycle (approximately 1,2% per annum), but with successively lower peaks, both on a quarterly and on an annual basis.
The consensus is that controlled prices growth is important to securing economic growth that has a wide participation base. However, the absence of consumer price growth is not in the interest of businesses, many of whom have been facing more rapidly increasing input costs that are measured through producer price indexes. In short, the absence of consumer price growth can be a drain on business confidence.
Despite the depreciation of the Australian Dollar and the improved competitiveness of domestic goods and services, compared to imports, the absence of confidence in prices growth continues. The experience of the Australian Dollar over the three years to the end of May 2015 are detailed below.
For further details, go to the FWPA Data Dashboard.
In June 2012, the Australian Dollar was trading above parity, at USD1.0191. It rose in July 2012 to USD1.0526, before commencing its decline to USD0.7634 in March 2015. Throughout 2015, the Aussie has traded in a narrow range. This is a condition that would under normal conditions lead to increased confidence and over time, new investment.
Yet, despite the improved investment conditions and certainty, new investment remains slow and has detracted from economic growth, despite historically low interest rates being available.
The absence of confidence in the domestic economy seems, at least to some extent, counter-intuitive. At a retail level, lower interest rates are contributing to a spike in investment in real property. Yet, as the next item in Statistics Count demonstrates, even that silver-lining owns a cloud or two.
