Consumer Price Index — Q2 | By the numbers
- Headline CPI fell by 1.9% in the June quarter — slightly ahead of the expected -2.0% outcome — after rising by 0.3% in Q1. In annual terms, CPI rolled over into deflation at -0.3% (exp -0.5%) from a 2.2% pace in Q1.
- Details for the underlying measures;
- Trimmed mean fell -0.15% (expected: 0.1%, prior rev: 0.48%) as the annual pace slowed from 1.79% to 1.22% (expected: 1.4%).
- Weighted median was near-flat at 0.07% (expected: 0.1%, prior 0.52%) with the annual pace pulling back to 1.29% from 1.6%.
Consumer Price Index — Q2 | The details
As expected, the headline Consumer Price Index recorded its sharpest quarterly fall on record of -1.9% with the pandemic leading to a deflationary shock to the Australian economy. However, some reversal will come through in Q3 with the provision of free childcare services ending on July 12, and petrol prices having since lifted off their shutdowns lows.
To the details and the chart below shows the price changes recorded across each of the groups for the quarter and through the year. The largest fall came from furnishings, household equipment and services (-11.2%qtr) as out-of-pocket child care costs fell by 95.0% following the Federal Government's announcement in early April to make those services available for free to families. This obscures some noticeable price rises within the category from cleaning products (6.2%), non-durable products (3.8%), furniture (3.3%) and appliances (3.0%) reflecting strong increases in demand ahead of the shutdown. The transport category saw a 6.8% decline in Q2 as automotive fuel prices fell by 15.9%. Education costs were also down sharply (-3.7%qtr) because this group includes outside school hours care services, which were also covered by the Federal Government's childcare announcement. Prices across the recreation and culture group were down by 1.0%, with domestic (-2.0%) and international travel costs (-2.0%) imputed by the ABS to have weakened in Q2. The housing group recorded a 0.6% decline, with rents down by a record 1.3% after state governments implemented mechanisms allowing tenants impacted by the pandemic through a loss of work or income to negotiate rent reductions with their landlord.
There were some groups that saw price levels increase overall in Q2 in alcohol and tobacco (1.5%) and food and non-alcoholic beverages (0.5%), with the latter seeing sharp rises from other cereal products (include pasta) (6.1%) on the stockpiling effect. Declines in fruit and vegetable prices (-0.7%) and in some meats suggest that the supply-side disruptions from the drought were moderating.
The next chart shows the contributions from each group to the headline inflation outcome in Q2. Furnishings, household equipment and services subtracted 1.1ppt, with childcare alone taking 1.3ppts away. Transport subtracted 0.8ppt from headline CPI on the back of the decline in fuel prices (-0.8ppt).
Consumer Price Index — Q2 | Insights
Today's report contained few surprises with most of the price decline dynamics known well in advance. There will be some reversal in Q3 as out-of-pocket childcare costs return and from higher petrol prices. However, there may not be much improvement in the underlying inflation pulse, which was weaker than forecast, with the domestic economy operating a long way below its pre-pandemic level and is likely to do so for some time yet.
