Australia | Jan 19 2009
By Rudi Filapek-Vandyck
Deflation is the word! it says above today’s release of the TD Securities-Melbourne Institute Monthly Inflation Gauge for Australia. This does not only set the tone for what the December survey has delivered, but equally so for a trend in consumer prices that presently appears to be firmly established.
The survey has shown that inflation has fallen by 0.2% in December, following a 0.6% fall in November and a 0.2% fall in October. The economists report this is the first time the TD-MI inflation gauge has registered three consecutive monthly falls. In the twelve months to December, the gauge rose by 2.2%, the lowest rate of increase since May 2005.
Contributing most to the overall change in December were price falls for automotive fuel, and fruit and vegetables. These falls were partially offset by price rises in rental accommodation, household supplies, and holiday travel and accommodation. The price of fuel fell by around 15% in December and is now circa 25% below its level a year ago. In contrast, the price of rent rose by around 3% in December, and is approximately 14% above its level in December 2007.
Joshua Williamson, Senior Strategist at TD Securities says present momentum of prices in Australia suggests that deflation risks rather than concern about inflation could be more pronounced in the first half of 2009. He believes next weeks official inflation data from the ABS are likely to confirm a 0.6% fall in the CPI in the December quarter.
Professor Don Harding, co-creator of the inflation gauge, forecasts the December quarter CPI is likely to fall by 0.64% in the December quarter. Harding also notes there’s still potential for inflation to pick up swifty.
Says Harding: “Although headline inflation is falling, broader measures of price pressure remain strong. For example, in December prices rose in 37 expenditure groups, fell in 9 and remained unchanged in 44 groups for a net balance of 28 price rises. This is almost three times the net balance figure that is consistent with achieving the Reserve Banks inflation target. One possible explanation is that part of the fiscal stimulus in December caused price rises in areas outside of petrol rather than stimulating increased activity. If these broader measures of price pressure do not moderate then the decline in headline inflation will be short lived presenting the RBA and the Government with a diabolical policy challenge in 2009.”