Disinflation in Australian Economy May Pause Interest Rate Increases.
According to the head of prices statistics at the Australian Bureau of Statistics (ABS), Michelle Marquardt, the latest CPI data series indicate ‘disinflation’ in the Australian economy. This term, Ms Marquardt said refers to two consecutive months of lower annual inflation. A scenario which many economists and analysts, though not all, feel could lead to a hiatus in the current run of increases in interest rates.
The ABS released the February CPI – the main indicator of inflation, on 29 March. The figures show a fall in annual inflation to the end of February. This follows the fall recorded in January which appears to give further support to the widespread belief that inflation did peak at 8.4% in December.
With the January rate 7.4% and now a further drop to 6.8% for February, the outlook of many is that the Reserve Bank of Australia could deliver a hold on rates on 4 April. This is the view of many commentators but not all experts are in agreement. According to reports some still feel the RBA will raise rates again.
The argument for a pause is further strengthened by the fall to 6.8% being much greater than many anticipated. Reports are that a fall to say 7.1% was more likely. Ms Marquardt notes signs of easing in some categories or prices but there are still some such as electricity and rents which show growth.
We cover off on the details of the latest CPI data series and provide an overview of possible outcomes for interest rates for those planning truck acquisitions in coming months and especially prior to end of financial year.
ABS CPI Announcement
The ABS reports the Consumer Price Index rose 6.8% over the year to the reporting period of February 2023. The second month in a row of a fall in the annual rate of inflation. The major contributors to inflation in the monthly data series remain the same as have been in the past few months. Electricity prices have been added as a new category.
Key contributors and key points in the latest data series include:-
- Housing up 9.9%, food up 8%, transport up 5.6%, recreation and culture up 6.4%.
- While a major contributor, the housing figure was down on the 10.4% recorded in January. New dwellings 13% is the lowest annual growth for a year. Ms Marquardt said this indicates continued easing in price increases for building materials.
- The rental market remains tight but the 4.8% figure recorded in January was maintained.
- Electricity prices increased 17.2% for the year as of February.
- There was a slight easing in food prices from 8.2% in January to a slightly smaller 8% in February.
- Fuel price rises also eased from the 7.5% reported in the January figures to 5.6% in February.
- The recreation and culture category, which includes the seasonal price sector of holiday travel eased significantly compared with the spike in December. For December that figure was 29.3%, in January 17.8% and in February that is down to 14.9%.
Underlying inflation has also shown a slight drop from 6.8% to 6.6%. Underlying inflation is the rate when some of the more volatile pricing is excluded. Both headline and underlying rates are referred to by the RBA so it can be helpful to know the difference and what the central bank is talking about.
Scenarios for Interest Rates
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