Inflation dropped 1.9 pct in June quarter

AUD  USD Rate Unfazed by Australia CPI with Fed Rate Decision on Tap

An an annual basis, prices have fallen by 0.3 per cent - a level significantly below the Reserve Bank of Australia's two to three per cent target which means interest rates are extremely unlikely to be raised any time soon.

The federal government's free childcare program, costing taxpayers $1.6billion, caused those costs to plunge by 95 per cent while the provision of free preschool in New South Wales, Victoria and Queensland sparked a 16.2 per cent plummet in the cost of primary education costs.

The national consumer price index (CPI) in July grew by 0.4 percent against June and 3.39 percent year-on-year, the General Statistics Office (GSO) reported on July 29.

ABS chief economist Bruce Hockman said negative annual inflation was rare for the Australian economy.

"Thereafter it is likely rental rates will fall further and will take quite some time to recover to previous highs".

The data was largely in line with economists' expectations for inflation to drop by around 2.0 per cent but still struck them as remarkable.

The ABS Chief Economist said this was only the third time in history negative inflation had been recorded.

'The last time consumer prices fell by 1.9 per cent over a quarter - that is, over a three month period - was in 1931, ' he said. That has now been reversed and will boost inflation in the current quarter.

Some CPI components recorded notable price rises on the back of increased spending: cleaning and maintenance products (+6.2 per cent); other non-durable household products, which includes toilet paper (+4.5 per cent); furniture (+3.8 per cent); major household appliances (+3.0 per cent); and audio, visual and computing equipment (+1.8 per cent).

"We thought our forecast of negative 0.7 per cent was bold", Westpac economist Justin Smirk wrote in reference to rent.

"We will have to see if we can determine the share of this fall is a real price adjustment and share that is just a COVID temporary adjustment". It is higher from 71.32 United States cents at Tuesday's close.



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