Australian interest rates will be on hold for a while longer after the headline Consumer Price Index rose 1.5% in the June quarter to produce an annual rise of 4.5% in the 2007-08 financial year.
According to figures from the Australian Bureau of Statistics these are the highest quarterly and yearly figures for 13 years, the GST-induced increases in 2000 and 2001 excepted.
As expected it was higher fuel (especially petrol) costs, housing and most financial services (the impact of the extra rises from the banks), which were the main culprits. Food costs eased in the quarter.
Some excitable commentators had pushed the line in recent days that a smaller than expected rise could be possible, given the slowdown in the domestic economy.
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The surge from higher oil and fuel costs, financial services and housing meant the figure was always going to be high, but not even market economists reckoned on the 1.5% rise for the quarter as the median forecast was 1.3%. Food costs eased 0.1%, thanks to a surge in supplies of fruit and vegetables, a point remarked upon by Woolworths in its 2008 sales figures report last week.
Some forecasts were for around 1.1% for the quarter and 4.2% for the year (such as Goldman Sachs JBWere), but the impact of rising fuel, financial and housing costs pushed the index up by much more than expected.
The latest figures compare to the 1.3% rise in the March quarter and the annual rate of 4.2%.
Our annual rate of 4.5% is high: the US rate in the year to June was 5.0%, the UK had an annual rate in the same period of 3.8% and inflation is running at a 3.7% rate in Europe.
The quarterly and yearly rises were the highest since 2000-01 when the impact of the introduction of the GST rippled through the economy. Apart from that, the June headline figures were the highest since the first half of 1995.
But the Reserve bank won’t change its neutral stance on rates. It has been warning the market for the past six weeks to expect a larger than normal increase in the CPI for June because of the impact of higher fuel costs (The RBA said higher petrol prices would add 0.25% to the June and to the September quarter CPIs) and sending a signal that such a rise would not force a rate rise when the board meets in early August.
As well the bank sees the extra rate increases from the bank (more than half a per cent) as further tightening monetary policy on top of its 1% increase in the cash rate to the current level of 7.25%.
The bank’s own measures showed an increase, but are now in line with the headline increase. The RBA’s Weighted Mean measure rose 1.0% in the June quarter (compared to 1.3% for March quarter) and 4.5% for the year (4.4% in the year to March). On a trimmed mean basis the quarterly CPI rose an unchanged 1.2% on the March quarter, to be up 4.3% from a revised 4.0% (4.1% originally).
Even though they are well above the RBA’s 2 to 3% annual rate target (over time), there are signs of some slowdown; signs that were also seen in the produce price indices for the June quarter which were released earlier in the week.
The ABS said in its release that the increase in transportation costs in the June quarter was mainly due to the rise in the price of automotive fuel (+8.7%).
“There were minor increases in most other categories of transportation, with motor vehicle repair and servicing (+0.8%) and other motoring charges (+0.8%) being the most significant. There was a small offsetting fall in the price of motor vehicles (–0.1%).
“Over the 12 months to June quarter 2008, the transportation group rose 6.9%, with the main contributors being automotive fuel (+18.4%), motor vehicle repair and servicing (+3.4%), other motoring charges (+5.3%), urban transport fares (+4.9%) and motor vehicle parts and accessories (+5.0%). There was an offsetting fall in motor vehicles (–1.3%).
“At the All groups level, the CPI rose in all capital cities this quarter. Brisbane rose 1.7%, Perth rose 1.6%, Sydney and Darwin rose 1.5%, Adelaide rose 1.3%, Melbourne and Canberra rose 1.2%, while Hobart rose 1.0%.
“Deposit and loan facilities and automotive fuel were the main contributors in all cities. Rents also rose strongly in most cities. Food prices were generally less significant and fell in some cities due to the impact of falls in fruit and vegetable prices.
“The relatively lower increase for Hobart was mainly due to smaller than average contributions from financial and insurance services, housing and food, combined with a stronger than average fall in recreation and a fall in household contents and services where other cities showed rises.
The ABS said that over the year to June quarter 2008, the All groups CPI rose in all capital cities with the increases ranging from 3.5% in Hobart to 5.1% in Brisbane. The higher result in Brisbane is largely due to stronger than average contributions from housing, transportation and clothing and footwear. Sydney was up 4.3% for the year.