Inflation in Australia at an annual rate of 3.9% over the 3 months to September continues a streak of relatively high inflation figures well outside the RBA’s targeted range of 2-3%. The press have focused on the role of food and house prices – food prices should continue to increase due to the impact of the drought.
The price increases are troublesome because they are broadly-based. As David Bassanese points out in today’s AFR (subscription required) in the year to September 2004 only 30% of the 90 odd goods and services in the CPI basket increased in price. Over the past year 60% of foods recorded inflation above 3%.
Hence the Reserve Bank’s ‘underlying inflation rate’ is now a bit over 3%. It is only gentle inflation but is nonetheless disappointing given the historically low unemployment and the amazingly good prospects for the Australian economy generally.