Thursday, July 23, 2009

What about Australia's inflation monster then?

Australia's inflation rate has collapsed from 5 per cent to just 1.5 per cent in less than a year - the most dramatic slide on record.

But far from celebrating felling what he had dubbed the "inflation genie" and what his prime minister called the "inflation monster," Treasurer Wayne Swan sees it as a sign of weakness, of an economy under siege.

"It's a reminder of the impact of the global recession," he told a press conference yesterday, adding that he expects unemployment to rise both this year and the next.

Mr Swan's advisors in the Treasury are understood to be considerably more negative about Australia's economy than is the Reserve Bank which Tuesday forecast a recovery as soon as this year...

Sharp falls in the prices of men's underwear, fruit, vegetables, milk and bank charges helped offset big increases in the prices of women's underwear, hospital services, real estate and petrol according to the Bureau of Statistics.

The underwear standoff was extreme. Whereas the prices of outergarments were little changed in the June quarter, in Melbourne the prices of mens underwear, nightwear and socks plummeted 9 per cent while the prices of women's underwear, nightwear and hosiery soared 7 per cent. The Bureau reported the same pattern in other cities.

It might be a result of the so-called "lipstick effect" in which women are said to spend more on cosmetics in depressed times as they reportedly did in the United States after the September 2001 terrorist attacks . No such effect has been identified for men.

The price of "personal care" items including cosmetics jumped strongly in the June quarter, climbing 1.2 per cent, three times Sydney's overall price increase 0.4 per cent.

Beer, another purchase said to be recession-proof, jumped in price 1.6 per cent.

A 10 per cent slide in the price of fruit and vegetables weighed down on inflation as a did an apparent narrowing in the interest rate margins and fees charged by finanical institions. The price of "deposit and loan fascilities" slid a further 4 per cent in the June quarter on top of a 14 per cent slide in the March quarter. The price of overseas holidays slid a further 3 per cent on top of a slide of 4 per cent the previous quarter.

Working in the other direction was a 4 per cent increase in the Sydney price of petrol, clawing back some of the 25 per cent slide over the previous six months. Sydney housing prices rebounded 1 per cent. Rents climbed a further 1.5 per cent.

Coalition Treasury spokesman Joe Hockey said that although the hadline rate of inflation had fallen to its lowest level in a decade the Reserve Bank's measure of "unerlying inflation" remained uncomfortably high at 3.9 per cent for the year and up 0.8 per cent for the quarter.

"This suggests inflation is still a challenge," he said.

"There is no room for the government to provide additional stimulus, let alone to continue with the waste and mismanagement in the stimulus program that it already has."

"The fact is our economy continues to perform well. The government should not overheat it."

Mr Swan were it not for the stimulus measures "many more people, many more Australian families would be without a bread winner".

"Even if the worst of the global disruption is over, we are going to have live with the consequences for some time," he added.

The skilled vacancy index compiled by the Department of Employment fell a further 1.7 per cent in July, sliding 3 per cent in NSW to be down 66 per cent over the year.

The Department found just 208 skilled jobs advertised in July, down from more than 600 a year earlier.

Published in today's SMH and Age