The Consumer Price Index (CPI) fell 1.9 per cent in the June 2020 quarter, according to the Australian Bureau of Statistics (ABS), the largest quarterly fall in the 72-year history of the CPI and the first time annual deflation has been recorded since March 1998.
And the panic buying of toilet paper at the start of the nationwide COVID lockdown played a hand in pushing up some prices.
Chief economist for the ABS, Bruce Hockman, said the June quarter fall was mainly due to free childcare (-95.0 per cent), which was made free by the Morrison government in response to the pandemic, a significant fall in the price of automotive fuel (-19.3 per cent) and a fall in pre-school and primary education (-16.2 per cent), with free preschool being provided in New South Wales, Victoria and Queensland.
“Excluding these three components, the CPI would have risen 0.1 per cent in the June quarter,” Mr Hockman said.
He said some CPI components had recorded notable price rises on the back of increased spending. These included: cleaning and maintenance products (+6.2 per cent), other non-durable household products, including toilet paper (+4.5 per cent), furniture (+3.8 per cent), major household appliances (+3.0 per cent) and audio, visual and computing equipment (+1.8 per cent).
Inflation had reached a six-year high of 2.2 per cent in the March quarter, attributed partly to the impact of drought and bushfires on food products. But the latest figures put the annual inflation rate for the year to the June quarter at -0.3 per cent.
Mr Hockman said: “Since 1949, this was only the third time annual inflation has been negative. The previous times were in 1962 and 1997–98.”
But is deflation good for living costs? Matt Grudnoff, senior economist at The Australia Institute, says “that depends”.
He told YourLifeChoices that when deflation occurred during a recession, that was also when people were losing their jobs. Things might cost less, but fewer people have income to make purchases.
“But if you’re a retiree and your income is largely shielded from falls, such as someone on an Age Pension, are you better off?
“Again, it depends. Some retirees’ incomes are safe, others are not. If you get most of your income from superannuation or other investments, then you’re at risk of going down in a recession. Business profits are likely to fall, and even rents will be under pressure to drop. Either retirees will need to use up more of their savings to maintain their income or they will have to take a cut to income.”
The Australian Financial Review reports that the central bank had forecast headline inflation to be -1 per cent by June, rising to just 0.25 per cent by December, while it expected its core inflation measure to be 1.5 per cent by June, slipping to 1.25 per cent by December.
“Core inflation is expected to sit below the RBA’s target for the next couple of years,” said the Commonwealth Bank’s Gareth Aird. “This means that the cash rate will sit at its record low of 0.25 per cent for many years and QE (quantitative easing) will remain part of the landscape.”
In other news, the ABC reports that the share price of Australia’s banks jumped, even though investors were warned to expect a significant fall in dividend payouts.
However, the Australian Prudential Regulation Authority (APRA), while withdrawing the direction it issued in April for banks to freeze dividends, is urging them to “retain at least half of their earnings”.
APRA says the change allows some of the country’s biggest companies to resume paying out shareholders while ensuring they keep a larger than usual buffer against further financial shocks.
“Although the environment remains one of heightened risk, we now have a stronger sense of how Australia’s economy and financial institutions are being impacted by COVID-19,” said APRA chairman Wayne Byres.
Have you noticed a change in the cost of living in the past three to four months?
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