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Low inflation is a modern curse. Dismal scientists despair

Economists are sometimes described as the dismal scientists. Perpetually capable of trawling up data that takes the gloss off joy and puts the boot into even modest failings. Thus it is with Australia’s inflation rate, which at an annualized 1.8% in the December quarter remains stubbornly below the nominal 2% to 3% per annum target set by the Reserve Bank of Australia. 

At a headline level, the annual inflation rate was ahead of economist’s average expectation of 1.7%, but only by the barest of margins. What is worse, the headline rate has been trending down for some time.

fig17

To go straight to the dashboard and take a closer look at the data, click here.

 

Considered on a quarterly basis, the chart also shows Australia’s Consumer Price Index (CPI) is sluggish across all periods. In the December quarter it marginally exceeded expectations, running at 0.5%.

Grounds for some happiness then? Not really.

Contributors to the upside included price rises that were focused less on production and quality increases and more on cost recoveries. The drought caused higher food prices (up 0.9%), tobacco prices played a part (up 9.4%) and housing costs rose 0.2% mainly because of a rise in electricity costs (up 0.9%).

Contributors on the downside included lower petrol prices and falling technology and communications equipment costs.

The really concerning feature of Australia’s inflation experience right now is that retail prices are juts not growing beyond glacial pace – and when they do it is often just to recover higher input costs. The chart below shows the declining fortunes of retail sales and emphasizes two key sectors from a forestry and wood products perspective: Hardware, building and garden supplies and Furniture, floor-coverings and homewares. 

fig18

To go straight to the dashboard and take a closer look at the data, click here.

‘Hardware’s’ growth over the year-ended November was 2.0%, while ‘Furniture’s’ was a very weak 0.5%.

Consumers have their hands deep in their pockets right now, with a combination of low wages growth and high household indebtedness (themes Statistics Count will continue to return to) combining to create the kind of fear that stalls spending, holds the CPI low and by the by, contributes to slower economic growth.

Truly a dismal day at the office for all the dismal scientists.

 

Posted Date: February 7, 2019

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