Australia | Jan 19 2009
By Chris Shaw
Australia’s inflation rate has been trending lower in the past few months but Westpac Banking senior economist Anthony Thompson believes there is now scope for headline CPI (Consumer Price Index) growth to turn negative in the December quarter.
The comment comes after the TD Securities-Melbourne Institute Monthly Inflation Gauge for December was released today, recording a 0.2% fall for the month for its third consecutive fall. Lower petrol prices and falls in fruit and vegetable prices contributed to the decline, though changes in these categories were partially offset by increases in rents, household supplies and holiday travel and accomodation.
Post the December numbers, Thompson notes three-month growth in the CPI has fallen to a negative -1.06% from minus 0.42% previously. With the mid-month numbers, which historically are better correlated with the CPI, also showing a decline, he suggests the outcome implies a much weaker December quarter headline CPI number than the (positive) 1.2% delivered in the September quarter.
As a bottom-up analysis of the data has not been completed, Thompson is not prepared to forecast negative inflation in the December quarter yet but he says the data increasingly suggests such an outcome is possible. The major caveat in his view is the unofficial TD-MI gauge has consistently underestimated headline CPI over the past four quarters.
With headline inflation falling, so too is core inflation weakening, though Thompson points out this is occuring at a more moderate rate than the fall in the headline numbers. His forecasts suggest core CPI growth will slow to 0.8% in the December quarter from 1.2% in the September quarter.