Thursday, July 26, 2012

The good news we won't believe. Inflation is extraordinarily low

A year of highs, a year of lows

Rent + 4.4%
Electricity + 10.7%
Gas + 8%
Water + 9.3%
Child care + 9.8%
Education + 6.1%
Petrol + 2.5%
Meat and seafood - 2.1%
Vegetables - 2.8%
Children’s clothes - 1.8%
Household appliances - 2.7%
Cars - 1.6%
Fruit - 37.8%

Inflation has slipped to its lowest point this century, giving the Reserve Bank ample room to further cut interest rates and calling into question claims that Australians are pressured by the cost of living.

The new annual inflation rate of 1.2 per cent reflects dramatic slides in the prices of fruit and vegetables and also in the prices of staples such as bread which is now 3 per cent cheaper than when opposition leader Tony Abbott identified it as problem during the 2010 election.

The Bureau of Statistics says the price of cheese has slipped 1.9 per cent in the past year, the price of meat and seafood 2.1 per cent, the price of children’s clothes 1.8 per cent, the price of cars 1.6 per cent and the price of household appliances 2.7 per cent.

Increasing sharply at the same time are large regular expenses such as rent (up 4.4 per cent), electricity (10.7 per cent), gas (8 per cent) and water and sewage (9.3 per cent). The price of child care has climbed 9.8 per cent in the past year, education an average of 6.1 per cent, insurance 7 per cent and petrol 2.5 per cent.

The clear pattern is that the prices of goods that can be imported have been sliding, down 2 per cent over the year, while the prices of goods and services produced at home have been climbing, gaining 3.3 per cent over the year... But the figures the prices of imported goods may be stabilising. In the past three months they climbed back 0.7 per cent rather than continuing to fall.

Treasurer Wayne Swan called on “doomsayers and rentseekers” to acknowledge that when averaged by the amounts Australians actually spent, prices climbed just 1.2 per cent, less than at any time since the late 1990s.

Shadow treasurer Joe Hockey said the prices that were rising the fastest were those Australians were least able to avoid paying.

He reached back five years to claim that since Labor had been in office electricity charges had climbed 64 per cent, water rates 59 per cent, insurance premiums 35 per cent and education fees 31 per cent.

“This is before the carbon tax,” he said. “Now is not the time to drive up the price of everything.”

Mr Swan said the low inflation rate completed a set of figures far better than at any point during the previous Coalition government’s term in office.

“It is rare in our economic history to have low unemployment, a huge investment pipeline, healthy consumption and contained inflation at the same time. It’s the best possible combination. But because it is good news it doesn’t tend to get treated like the hand-wringing, the alarmist predictions from people who want to peddle gloom and doom in our economy.”

Asked who he was referring to Mr Swan refused to be drawn, identifying: “anyone out there who is pushing their own barrow”.

On Monday private sector forecaster Delloite Access Economics said the budget surplus had evaporated and the mining investment boom has only two years to run.

Financial markets were unimpressed with the inflation result, pushing the share market slightly lower on fears Spain may be headed for a financial bailout.

“Inflation is low which leaves the door open for the Reserve Bank to cut rates further if it deems it necessary,” said HSBC chief economist Paul Bloxham. “But it has already cut rates 0.75 points in the past three months. On local conditions alone it is unlikely to go further. But the risks to the global economy are skewed to the downside. There is little standing in the way of the Bank responding to those risks.”

The average of the so-called underlying rates watched by the Reserve Bank is 1.95 per cent, slightly below its target band of 2 to 3 per cent.

In today's Canberra Times, Sydney Morning Herald and Age

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