Inflation edges higher on fuel and medical, but childcare costs fall

| 31.07,19. 06:21 PM |

Inflation edges higher on fuel and medical, but childcare costs fall

Photo: Petrol prices fell significantly at the start of the year, but have since rebounded. (ABC News: Alistair Kroie/Nicole Mills)

A spike in fuel prices and medical costs has delivered a slightly higher than expected bounce in inflation over the June quarter, easing the pressure on the Reserve Bank to cuts interest rates again immediately.

The Consumer Price Index (CPI) rose 0.6 per cent over the quarter to be up 1.6 per cent for the year.

Core inflation — an average of the trimmed mean and weighted median measures and regarded as the RBA's preferred measure — came in at 1.4 per cent over the year, the same as the first quarter reading and the weakest reading since the series started in 2003.

It is also the 14th consecutive quarter core inflation has come in below the Reserve Bank's 2-3 per cent target band.

But, despite price rises being subdued overall, there were some big losers over the past quarter.

Those losers included motorists, people seeking medical treatment or taking overseas holidays, and smokers.

Motorists were especially hard hit over the past few months, after enjoying cheaper fuel over summer.

"Automotive fuel prices rose 10.2 per cent in the June quarter 2019," ABS chief economist Bruce Hockman said.

"This rise had a significant impact on the CPI, contributing half of the 0.6 per cent rise this quarter.

"Automotive fuel prices returned to levels recorded in late 2018 after falling 8.7 per cent in the March quarter 2019."

However, domestic holidays were cheaper during autumn and the first month of winter (-1.5pc), as were fresh fruit and vegetables (-2.8 per cent) and electricity charges (-1.7 per cent).

Working parents with small children have also saved a substantial amount of money over the past year, with child care costs falling due to policy changes.

"Through the year, utility prices have fallen 0.2 per cent and child care has fallen 7.9 per cent following the introduction of the Child Care Subsidy package in July 2018," Mr Hockman observed.

Housing costs fall for first time in 20 years

There was also unusually good news for both home owners and renters with ABS noting that housing costs recorded their first quarterly fall in more than 20 years, down 0.2 per cent, although they are up 0.5 per cent over the year.

The move is significant given housing costs have the largest weight in the CPI.

The ABS cited "lower electricity and gas prices, weak housing market conditions and increasing rental vacancy rates in some capital cities" as the key factors behind the fall.

"The downturn in the housing market is clearly affecting the CPI, with housing-related components expected to be an ongoing drag on inflation in coming quarters," NAB's Kieran Davies said.

Further rate cuts delayed

However, the good news for parents and energy users means that borrowers may have to wait a little longer to see any further reduction in the interest rate on their loans.

Given the recent comments from RBA governor Philip Lowe that a flexible inflation targeting framework did not require inflation to be within the target range at all times, the data, while weak again, does not necessarily increase the pressure on the RBA for another cut at the upcoming August 6 board meeting.

"We do not think a slightly softer than expected outcome would trigger the RBA to cut interest rates more aggressively," Bank of America Merrill Lynch economist Tony Morriss said.

NAB's Keiran Davies said the RBA is now unlikely to alter its immediate view on where inflation is heading.

"We expect the board to remain on hold at 1 per cent in August, and to continue to signal a willingness to do more if needed," Mr Davies said.

"We still expect the bank to cut rates again by November, after it receives more information on the labour market, growth and the initial impact of both the Government's tax refunds and the June/July rate cuts."

Low inflation still pointing to problems

Indeed economist Callam Pickering was not so upbeat on the data, arguing low inflation points to deep underlying problems in the economy.

"At first glance the latest set of inflation figures seem positive, at least compared with recent poor results, but a peak behind the curtain reveals that Australia's inflation problem remains dire," he said.

"Problems such as low wage growth and high rates of underutilisation that have persisted for a number of years.

"The RBA has already cut rates twice this year, bringing rates to just 1 per cent, to address these issues. We expect more will need to be done and anticipate a two further cuts over the next 12 months."

Embed: Inflation vs RBA target band

(Votes: 0)

Other News

Federal Police push back at media bosses wanting greater press freedom following journalist raids Driver dies in fiery crash moments after doing burnout in front of police M4 delays in Sydney after motorcyclist killed in crash Police responding to siege situation south of Sydney Shorten on grieving the election that would have made him Prime Minister NT liquor licensing laws affect sale of household cooking products, vendors warned HIV and hepatitis C risk to patients as Cairns dental clinic closed by health authorities Alleged driver who fled crash arrested on plane at Sydney Airport Five youths charged after suspected stolen Jeep involved in Brisbane smash Public chase driver who fled after elderly woman in wheelchair hit by car in Sydney's Newtown Opal Tower unit owners launch multi-million-dollar class action against NSW State Government Centrelink's 'robodebt' program 'harsh and unfair' and should be scrapped, Federal Labor says Sydney bus users can now ‘tap and go’ with credit and debit cards A woman has been found dead in a suburban Melbourne home Body found in bushland at Slacks Creek may be missing woman Simone Rothe, police say Barnaby Joyce says he's struggling to support his families on $211,000 parliamentary income Labor launches attack over energy prices Plane crash at William Creek airfield in South Australian outback Territory police accused of overreaction as shotgun brandished in Gulf bush camp Bomb squad find explosive device at Victorian property Sydney teen falls two metres from rock ledge Man charged over Sydney car rampage Three-year-old girl locked in car while carer in Bankstown club E-cigarettes do not help reduce cancer, World Health Organisation warns Rape suspect who 'faked his own death' arrested Police chase down pedestrian who didn't cross 'in white lines' Police hunt 'upskirter' who filmed schoolgirls on Sydney to Chatswood train Traffic banked up kilometres after fiery north Sydney crash Restaurant owner accused of stabbing himself and torching his Italian eatery Western Sydney shop set alight in 'arson attack'