ABS reports 0.5% CPI for the December Quarter

On 30 January 2018, Australian Bureau of Statistics released the nation’s CPI data for the December quarter. For Q4 December’18, CPI stood at a change of 1.8% annually and 0.5% quarterly, slightly above market expectations. The major increase in inflation was observed in Alcohol and Tobacco with annual change of 6.8% and quarter change of 3.2%. Food and non-alcoholic beverages showed an annual and quarter increase of 1.5% and 0.9% respectively. The performance across other segments is formulated below:

CPIAnnual Change (%)Quarter Change
Clothing & Footwear-0.7-0.2
Housing1.50.2
Furnishings, Household equipment and services-0.80.5
Transport2.8-0.7
Health3.3-0.4
Insurance & Financial Services1.50.3
Communication-4.3-1.3
Education2.70.0
Recreation and Culture1.71.1

All group CPI rose 0.5% this quarter as compared to 0.4% in September quarter where food and alcoholic items were the major elements to contribute to the overall price rise (inflation) in the subsequent quarters. Inflation in housing sector rose by 0.2% which indicates a rise in the price of units in real estate sector. Inflation in the transportation sector reduced by 0.7% which indicates that the fall in the price of oil helped the transportation sector which passed its benefit to passengers. The inflation in Insurance & Financial Services rose by 0.3% which indicates the high cost of borrowings and increased premium in the insurance sector. Fall in prices in the telecom sector was due to decrease in average revenue per user (ARPU). Education sector showed consolidation whereas the price rise in recreational and cultural sector reflects a rise in tourism (foreign and domestic) in the country. Less demand in apparels led to a decrease in prices across clothing & footwear segment. A significant price fall in this quarter was observed in automotive fuel (-2.5%), Wine (-1.9%), telecom (-1.5%) and computing equipment (-3.3%).

A huge fluctuation was observed in the Australian dollar vs. US dollar possibly due to the activities by foreign institutional investors. After opening the trade at US$ 0.7153, the upside momentum in the Australian dollar kicked off with the release of CPI figures slightly higher than the market expectations. AUD last traded at US$0.73.

It is expected that the increase in inflation may cease to continue for the next quarter attributable to the slower world economic growth due to an ongoing trade war between global powers USA and China. The central bank may either go for status quo or rate reduction in their next policy meeting. Market analysts are keeping closer eye on the next RBA’s interest rate direction.

Currently, 10-year treasury yield which is AAA rated by Standard & Poor’s is trading at 2.249% whereas 2-year treasury yield is at 1.863%. Bank rate for RBA is 1.5%.


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