The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the June 2012 quarter today and the inflation rate continues to plummet in the face of a slowing economy. The trend over the second half of 2011 was for inflation to ease. But the plunge in the first six months of 2012 that today’s data reveals is suggesting a weakening economy notwithstanding the first-quarter national accounts data which showed above-trend growth. pointing to a very sick economy. The annual inflation rate is now estimated to be 1.2 per cent (down from 1.6 per cent in the 12 months to March 2012) with a downward trend. The Reserve Bank of Australia’s preferred inflation measures – the Weighted Median and Trimmed Mean – are now at or below its inflation targetting range. This suggests that they will soon have to consider inflation to be “too low” and as a result engage in significant monetary policy easing. The inflation trend clearly contradicts the commentators who have been predicting the opposite on the basis of the (modest) rise in the budget deficit over the last few years as the downturn hit Australia. Their standing in the predictions stakes continues to be dented by the data. The evidence is suggesting that the economy is slowing under the weight of the federal government obsession with achieving a budget surplus in the coming fiscal year.

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the March 2012 quarter today and the inflation rate has plummetted in the face of a slowing economy. The trend over the second half of 2011 was for inflation to ease. But the plunge in the first three months of 2012 that today’s data reveals is pointing to a very sick economy. The annual inflation rate is now estimated to be 1.6 per cent with a downward trend. As I noted last September if the trend that was apparent then continued, then the annualised rate would fall below the Reserve Bank of Australia’s (RBA) lower inflation targetting bound. That has now happened in today’s data, which means that the RBA has to consider inflation to be “too low” now and significant monetary policy easing (via their own logic) should be forthcoming next Tuesday when the RBA Board meets again. You might ask whether the “bank economists” (the private sector mavens who always think inflation is about to accelerate out of control) predicted that the March quarter inflation rate would be 0.1 per cent. The answer is that they predicted that inflation for the March would be running at 7 times the actual rate (0.7 per cent), which raises the question yet again – why does the mainstream media rely on their input to guide the public on where the economy is heading. Today’s data signals that the Australian economy is not in robust shape and the major cause of this slowdown is the irresponsible fiscal policy obsession that the Government has with achieving a budget surplus in the coming fiscal year. It is an act of vandals.

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the September 2011 quarter today and it revealed that the easing in the inflation rate detected in the June quarter has continued. The last three quarters have delivered inflation rates of 1.6 per cent in March 2011, 0.9 per cent in the June quarter and now 0.6 per cent in the September quarter. If that trend continues the annualised rate will fall below the Reserve Bank of Australia’s (RBA) lower inflation targetting bound. The annualised inflation rate fell from 3.6 per cent in the June quarter to 3.5 per cent in the 12 months to September 2011. The ephemeral factors associated with the impacts of the natural disasters (floods and cyclones) that our food growing areas endured earlier this year are now dissipating. The major factors driving inflation now are utility price increases, travel and accommodation. The RBA’s preferred inflation measure (explained below) grew by 0.3 per cent. That will put downward pressure on interest rates. You might ask whether the “bank economists” (the private sector mavens who always think inflation is about to accelerate out of control) predicted this significant easing. The answer is that they predicted that inflation for the September would be running at twice the actual rate. That is, a 100 per cent error – which raises the question yet again – why does the mainstream media rely on their input to guide the public on where the economy is heading.

Today I was trawling through old issues of the now-defunct The Public Interest quarterly today and unfortunately stumbled on a recent issue of its successor National Affairs (Number 9, Fall 2011 edition) which carried an article – Inflation and Debt – written by Chicago economist John H. Cochrane – a known free market/anti-government commentator. It was one of those articles where the analytical framework was taken from some textbook rather than being ground in the realities of the monetary system and all the evidence pointed away from the major conjecture but the conjecture was still asserted as an inevitability. The title reflects the sort of wan, desperate need to find inflation despite vast volumes of excess capacity and zero wage pressures. Accelerating inflation has to be out there somewhere … in the dark or somewhere.

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the June 2011 quarter today and it revealed a significant easing of the inflation rate on last quarter (0.9 per cent compared to 1.6 per cent in March 2011). The annualised inflation rate rose to 3.6 per cent up from 3.3 per cent in the 12 months to March 2011. While many commentators are calling this the start of a spiral in core inflation spike the data is still being driven by ephemeral factors associated with the impacts of the natural disasters (floods and cyclones) that our food growing areas endured earlier this year. The major factors driving the inflation rate are food (and that is mostly bananas) and world oil price movements. I still consider these impacts to be mostly of a transitory nature. Given that the core inflation rate is still well within the RBA’s targeting band, I do not consider there is a case for an interest rate rise next week (using their own logic). Bananas cannot keep increasing by 470 per cent every 6 months. And if they do, they are easily substituted away from.

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the March 2011 quarter today and it revealed a sharp spike in the headline inflation rate (up 1.6 per cent for the quarter) but a very benign underlying inflation story. Overall, the impacts of the natural disasters (floods and cyclones) are driving food prices up and world oil price movements are causing local petrol prices to rise. These impacts are likely to be transitory. It is interesting that there is considerable disagreement among bank economists about what the data release means. Many are joining my chorus and suggesting that the transitory nature of the inflation influences will not compel the Reserve Bank to push up interest rates. At present, the data tells us that there is no inflationary outbreak evident and other data suggests that the economy is slowing.

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the December 2010 quarter today and it showed that inflation continues to fall. The ABC News reported that – CPI figure comes in below expectations. Who’s expectations you might ask? Yes, the bank economists and other main-streamers who have a one track obsession that whenever there is some sign of growth there must be inflation. Wrong again. It was clear that inflation is moderating notwithstanding the spikes that will come in the next months as a result of the flood disasters. But when will the inflation-obsessives give up on the idea that the budget deficits cause inflation. The reality is that the Australian economy is slowing down and there is still a significant amount of spare capacity available for real output expansion should aggregate demand rise. Some sectors are growing strongly (mining) but that unlikely to create significant cost pressures elsewhere in the economy given the amount of labour slack. Last month I gave the bank economists a tip. Consult the ideological chart and then predict the opposite. They would have predicted the data movements more accurately if they had have taken my advice. There is no inflationary outbreak evident – the economy is slowing.