Headline Result

Inflation data for the September Quarter 2010 released today by the Australian Bureau of Statistics shows that Australia's annual headline inflation rate increased by 2.8%, to be just below the upper limit of the RBA's target range.

The national Consumer Price Index recorded quarterly growth of 0.7% in the June 2010 quarter.

Both the quarterly and annual increases are consistent with market expectations.

Underlying Result

In terms of the RBA underlying rate, the 0.6% quarterly increase was slightly below RBA expectation of a 0.7% rise. The annual  underlying rate is now 2.5%.

Capital Cities Quarterly CPI Growth:

• Melbourne – 0.6%
• Perth – 0.5%
• Sydney – 0.8%
• Brisbane – 1.0%
• Adelaide – 0.9%

It is notable that all capital cities rate of quarterly increase showed an acceleration from June, with the exception of Perth.

June 2010 Key Points

THE ALL GROUPS CPI:

• rose 0.7% in the September quarter 2010, compared with a rise of 0.6% in the June quarter 2010. 
• rose 2.8% through the year to September quarter 2010, compared with a rise of 3.1% through the year to June quarter 2010.

OVERVIEW OF CPI MOVEMENTS:

• The most significant price rises this quarter were for tobacco (+7.0%), water and sewerage (+12.8%), electricity (+6.0%), property rates and charges (+6.2%) and rents (+1.1%). 
• The most significant offsetting price falls were for automotive fuel (-3.7%), vegetables (-5.4%), pharmaceuticals (-3.9%), audio, visual and computing equipment (-2.7%) and soft drinks, waters and juices (-1.8%).

Comment

Although the headline rate is now below the upper limit of the RBA's target range, this outcome is still likely to maintain a measure of upward pressure on the official cash rate. The RBA will continue to focus on the strength and longevity of the pressures that are sustaining the annual rate at the top end of the range, including the strength of the employment market. While it is important to note that the annual  rate was expected to ease anyway as the high reading in the September quarter 2009 dropped out of the annual calculation, of growing significance is the longevity potential of a strong $A.

With the $A seemingly doing a good job of creating offsets to price increases (note the decrease in automotive fuel, pharmaceuticals, and audio, visual and computing equipment) and therefore taking some of the inflationary pressure out of the economy, the chance of a 25 basis point increase on Melbourne Cup day next Tuesday November  2nd 2010, is not as odds-on as it was considered prior to today's release.

CPI Changes

In December 2010, the findings of the largest review of the CPI undertaken in a decade will be released. It is considered that changes may include the release of the CPI on a monthly basis, rather than the quarterly reporting in place now. This is widely regarded as good development as in recent years some quarterly results have not been representative of general trends. 

For more information please visit: www.abs.gov.au  

Source:  Colliers International Research

 
 
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