Inflation Relaxes in Australia Along With Consumer Demand

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Interesting how much inflation has receded in the world, even in Australia where inflation has been knocking on the door. But during the last quarter underlying inflation showed a rise of only 0.5%. From the Sydney Morning Herald…

The figures from the Australian Bureau of Statistics showed the consumer price index rose by 0.6 per cent during the quarter and by 3.1 over the year to June. Doesn’t sound too terrible to me.

But the jubilation conferred on Gillard rose from the news on ”underlying inflation” – the general trend in prices, with exceptionally large price changes removed – which showed a rise of 0.5 per cent for the quarter and 2.7 for the year.

This is the first time the underlying rate has been within the Reserve Bank’s 2 to 3 per cent target range for almost three years, and was a lot lower than economists were expecting. It eliminated the likelihood the Reserve Bank board would see a need to raise the official interest rate another notch at its meeting on Tuesday.

Why are so many prices falling? Partly because the appreciation of the dollar has reduced the cost of imported items, but mainly because the weakness of consumer demand following the recession the pollies say we didn’t have has obliged many retailers to discount their prices to attract sales.

The job numbers in Australia are extremely strong. I wonder if the Aussies are looking all around them – from China to Europe to the US – and they’re getting a little nervous. Australia’s economy has been remarkably resilient these past few years…but it’s small and depends on its major trade partners growing their economies, especially China.