Consumer Price Index — Q1 | By the numbers
- Headline CPI lifted by 0.34% in Q1 to outpace the median forecast (+0.2%) but was well down on the 0.69% rise in Q4. In annual terms, CPI advanced from 1.84% to a 5½-year high of 2.19% (expected: 1.9%).
- Details for the underlying measures;
- Trimmed mean lifted by 0.47% in Q1 (expected: 0.3%, prior rev: 0.45%) as the annual pace firmed from 1.6% to 1.79% (expected: 1.6%) to its fastest since Q4 2015.
- Weighted median advanced by 0.52%q/q (expected: 0.4%, prior 0.39%) to be up by 1.68%Y/Y (highest since Q4 2018) from 1.3%.
- The average of these measures firmed to 0.5% on the quarter and 1.73% over the year from 0.42%q/q and 1.45%yr.
Consumer Price Index — Q1 | The details
Taking an overall view, tradables inflation (influenced by global factors) declined slightly in the quarter by 0.2% as falling petrol prices more than offset rises across other goods, though the annual pace continued to trend higher to reflect the pass-through from a weaker Australian dollar. Inflation remains driven by the non-traded sector (where prices reflect domestic factors) following a 0.7% lift in the March quarter that firmed the annual pace from 2.0% to 2.3%.
Looking into the March quarter's headline inflation outcome, the food and non-alcoholic beverage group was the driving influence. In percentage terms, prices across the group were up 1.9% in the quarter and the annual pace lifted from 2.6% to 3.2%, contributing more to inflation in Q1 (+0.36ppt) than implied by the overall outcome (0.34%). Within this, vegetable prices lifted strongly (+9.1%qtr) as the effects of drought and disruptions to supply chains due to the bushfires hit, directly adding 0.12ppt to Q1 inflation. These influences also placed upward pressure on meat prices (+2.0%qtr). In addition, the ABS attributed a 0.7% price rise in restaurant meals and takeaway food to the bushfires.
Prices in the alcohol and tobacco group lifted by 1.6% in the March quarter to be up by 7.9% through the year, with the group contributing 0.15ppt to headline inflation. Tobacco prices rose by 2.0% in Q1 (+0.08ppt) and by 17.1% year on year, while alcohol prices lifted by 1.3% in the quarter (+0.07ppt), firming the annual increase from 1.4% to 1.7%.
The start of the academic year saw education costs up by 2.6% in the March quarter (2.7%yr) on broad-based increases across secondary and preschool and primary providers.
The health group contributed 0.11ppt to Q1 inflation as prices lifted by 1.7% (2.9%yr) with pharmaceuticals (+5.1%qtr) the main influence here as the safety net threshold for the PBS reset on January 1.
It was another subdued quarter from the housing group (0.3%qtr, 0.6%yr) adding 0.09ppt to Q1 CPI as both rents (+0.1%qtr) and new dwelling purchase costs (+0.4%qtr) remained well contained.
On the back of this, furniture and furnishings prices weakened further, falling by 3.0% in the quarter and this weighed notably on the furnishings, household equipment and services group as a whole (0.8%qtr, 2.2%yr). However, in line with households stockpiling in preparation for COVID-19 restrictions, the ABS noted strong demand for 'other non-durable household products' (including items such as toilet paper) resulting in prices advancing by 3.4% in Q1, while personal care products lifted by 2.2% as demand for hand sanitiser and soap soared. Child care services costs lifted by 1% in Q1 (6.2%yr) but will completely roll over in Q2 in response to the Federal Government's announcement to make those services to be free for families out to the back end of June.
Weighing most notably on inflation in Q1 was recreation and culture (-0.25ppt) as the cost of both domestic (-3.1%) and international holiday travel and accommodation was hit by the headwinds from Australia's summer bushfires and the COVID-19 outbreak globally.
Transport cut a sizeable 0.23ppt from Q1's CPI outcome as fuel prices dipped by 6.0% (-0.26ppt) in the quarter, though a far larger deflationary hit will come through in the June quarter as global oil markets have since collapsed further.
Clothing and footwear prices fell by 0.7% in the March quarter (2.1%) to subtract 0.03ppt from inflation, while the Communication group continues to see prices coming under pressure falling a further 0.3% in Q1 to be down by 3.4% through the year.
Consumer Price Index — Q1 | Insights
Australia's inflationary pulse was a little stronger than expected in the March quarter, though that broadly related to the effects of the summer bushfires and earlier drought conditions placing upward pressure on vegatable and meat prices. A significant deflationary hit lies ahead in the June quarter as fuel prices have collapsed to their lowest levels in nearly two decades and governments and businesses have announced a wide array of cost saving measures to support the household sector through the shock from COVID-19.
