Thursday, July 29, 2010

Expect to hear less about prices, rates out of control

Low inflation has knocked the stuffing out of the debt/deficit/doom campaign

Julia Gillard will go the polls with the ultimate economic double -- both falling inflation and falling unemployment after a surprise dive in inflation removed the prospect of higher mortgage rates in the lead-up to the election.

The Reserve Bank board meeting will vote to leave interest rates on hold Tuesday after the closely-watched underlying rate of inflation slid to 2.7 per cent, the first time it has been below 3 per cent and within the Bank's target band for three years.

"I am encouraged, but not complacent," Treasurer Wayne Swan told the Herald. "Inflation is back in the band as we forecast, but we are heading into Mining Boom Mark 2. There will be pressures on infrastructure and housing which will need long-term solutions."

Opposition treasury spokesman Joe Hockey declared the figures a sign of failure.

"I'm sure the Treasurer will say that inflation is under control," he told a press conference.
"But you can't say that to Australian families that are paying 18 per cent more for their electricity, who are paying 14 per cent more for their water, 10 per cent more for their gas and nearly 7 per cent more for hospital and medical services."

While utility prices climbed enormously in the year to June almost every other price rise was low to sharply negative... Bread, an early feature of the Coalition's campaign climbed in price just 2 per cent in the year to June. In the most recent quarter it fell in price or was steady in every city but Melbourne. The price of clothes slid a further 4 per cent, the price of cheese and eggs 1 and 4 per cent and the price of computers and audio visual equipment a further 20 per cent.

"We are seeing extensive discounting," said Commonwealth Bank economist Michael Blythe. "It's in household appliances, insurance, holiday travel and accommodation and clothing; and its something of a ticking time-bomb. A return to more normal conditions could see the discounting quickly reversed and inflation climb."

The headline inflation rate of 0.6 per cent would have been only 0.3 per cent had it not been for the one-off 25 per cent hike in tobacco tax.

"There will be no interest rate hike next week," said Macquarie Group economist Rory Robertson. "If you were thinking the Reserve Bank might make the election campaign interesting, think again."

The governmetn faces only one more economic hurdle ahead of the August 21 election, the release of the July uenmployment figures Thursday week, just nine days before the poll.

The unmeployment rate has been below 5.5 per cnet all year and is currently 5.1, very close to the 5 per cnet mark defined by the Treasury as "full employment".

Australia created 45,900 jobs in June, the eleventh successive month in which employment has climbed, typically at the rate of around 1000 jobs per day.

Almost all of the new jobs created in June were in the mining-dominated states of Western Australiaand Queensland. those states have the fastest inflation in Austalia, with prices growing at annualr ates of 3.5 and 3.2 per cent. Prices in Sydney climbed 2.9 per cent and in Melbourne 3.1 per cent.

The ups and downs of inflation

What's up?

Electricity +18%
Tobacco +17%
Water + 14%
Gas + 10%
Petrol + 8%
Beer + 6%
Education + 6%
Bread + 2%

What's steady?

Milk 0%
Newspapers 0%
Telecommunication 0%

What's down?

Cheese - 1%
Shoes - 3%
Eggs - 4%
Clothes - 4%
Towels - 5%
Computers, HiFi - 20%

ABS 6401.0, Year to June 2010

Published in today's SMH and Age

Related Posts

. So you think you trust the Consumer Price Index?

. Does the Reserve Bank think the Consumer Price Index is a joke?

. Eggs, bacon, milk - breakfast gets cheaper