Australian Consumer Price Up, But Predicted to Fall Due to Pandemic

People are seen entering Woolworths supermarket in Balmain on March 17, 2020 in Sydney, Australia. Jenny Evans/Getty Images

The latest Consumer Price Index (CPI ) figures released on April 29 shows a headline rise of 0.3 percent for the March quarter, reflecting the impact of drought and bushfires on some food prices as well as the early effects of the CCP virus, according to Australian Bureau of Statistics (ABS).

The most significant price rises in the March quarter were for food and non-alcoholic beverages (+1.9 percent), alcohol and tobacco (+1.6 percent), education (+2.6 percent), and health (+1.7 percent).

The biggest price fall for the quarter was led by automotive fuel (-6.0 percent), followed by domestic holiday travel and accommodation (-3.1 percent), and international holiday travel and accommodation (-3.0 percent), which are among the sectors hit hardest by lockdown restrictions induced by CCP (Chinese Communist Party) virus, commonly known as novel coronavirus.

ABS Chief Economist Bruce Hockman explained that price surges for food in the March quarter were largely attributed to drought and bushfire related effects, with fruit and vegetable prices surging by 6 percent, and meat and seafood by 2 percent.

The rise of CPI also revealed early effects of the CCP virus, thanks to the higher purchasing of certain products towards the end of the quarter.

“Most notably, rises were seen in, other non-durable household products (+3.4 percent), which includes toilet paper; personal care products (+2.2 percent), which includes soap and hand sanitiser; and other cereal products (+4.4 percent), which includes rice and pasta,” he said.

The 0.3 percent rise, the highest quarterly figure since September 2014 quarter, also brought annual inflation up to 2.2 percent, the first time above 2 percent since 2018.

However, most economists expect that CPI is likely to turn negative in June, as the economic impact of lockdown restrictions filters through.

“More evident effects of COVID-19 are expected in the June quarter CPI, ” Hockman said.

Reserve Bank governor Philip Lowe said recently that he expected deflation in the June quarter, citing a collapse in oil prices and the introduction of free childcare as major factors weighing down the price level.

“The large fall in oil prices combined with the introduction of free childcare and the deferral or reduction in some price increases means that it’s quite likely that year-ended headline inflation will turn negative,” he said on April 21 at a speech in Sydney.

“If so this would be the first time since the early 1960s a price level has fallen over a full year.” He added.

HSBC chief economist Paul Bloxham and Commonwealth Bank of Australia’s senior economist Kristina Clifton also said lockdown restrictions, which have weakened demand for such services as travel and accommodation, would be the main driver for the expected deflation.

The Consumer Price Index run by ABS measures price changes of a fixed basket of goods and services purchased by the average household in eight capital cities around Australia.

Data on CPI is primarily used as an indicator to monitor and evaluate levels of inflation.

The RBA’s official target rate for consumer price inflation is between 2 and 3 percent. Negative inflation often indicates low consumer confidence and weakened purchase, contributing to an economic downturn.