Australian inflation trending down – lower oil prices and subdued economy

Despite missing out on the recession associated with the GFC, Australia is now following the rest of the world down the decelerating inflation route. Yesterday, the Australian Bureau of Statistics released the Consumer Price Index, Australia – data for the December-quarter 2014 yesterday. The December-quarter inflation rate was 0.2 per cent which translated into an annual inflation rate of 1.7 per cent. Recall that the September-quarter inflation rate was 0.5 per cent and the annual rate was 2.3 per cent. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are now at the bottom end of their inflation targetting range (2 to 3 per cent) and are trending down. Various measures of inflationary expectations are also flat or falling, including the longer-term, market-based forecasts. This suggests that the RBA may consider that the major problem in the economy is declining growth and rising unemployment, especially in the context of China’s deliberate slowdown. The benign inflation outlook provides plenty of room for further fiscal stimulus.

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