Thursday, October 26, 2006

Disappointing inflation number

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.

4 comments:

hc said...

I agree that the economy is closer to full capacity than in years and that not the time to panic. But the inflation outcome is troubling with the foolish minimum wage judgement today at 5.6% which is well in excess of inflation is dangerous..

And Ian Harper's argument that higher minimum wages will induce more workers to seek jobs rather than stall the elimination of unemployment in Australia is very unconvincing.

But generally I remain optimistic about the Aussie economy.

Anonymous said...

A lot more rate rises to come if Access is correct.

RBA is quite upfront about labour scarcity and infrastructure problems.

Moreover the RBA core measures are still on an upward curve which should continue next quarter.

Harps decision is a mystery to me given his history.
Is he doing a Joe Isaac

hc said...

Fred as I have argued before I think to regard wages as a contribution towards achieving redistributive justice is a dangerous philosophy.

Wages should reflect the productivity of workers not ideas about social justice which are the concern of the public sector. Lets hope that the strong economy is sufficient to prevent a rise in unskilled unemployed. I had hoped unemployment might be cut even further.

hc said...

I think Howard appreciates the political potential of this decision to dig into the IR critique provided by the ALP.

Not very worthy but thats probably what he has done.