Australia's annual rate of inflation has fallen by 0.2 percent on Wednesday, while the Consumer Price Index (CPI) rose by a mere 0.2 percent for the June quarter.
This came as a surprise to most economists, with the consensus being a small uptick in the rate of inflation, and Kate Hickie, Australia & New Zealand economist at Capital Economics told Xinhua on Wednesday that the unexpected declines were due to lower prices.
"The decline was largely driven by a 2.5 percent quarter on quarter (q/q) fall in the petrol price, and a 3.2 percent q/q drop in the price of domestic holiday travel," Hickie said.
"What's more, fruit and vegetable prices unexpectedly fell in the second quarter despite the supply disruptions caused by ex-Cyclone Debbie." According to the chief economist at CommSec, Craig James, not only were the prices of goods constrained over the period, but also the cost of services.
"The gloomsters can even become a little more positive as wages are still in front of most measures of consumer prices. Indeed wages are growing well ahead of broader price measures such as the household consumption price deflator," James told Xinhua.
The economist believes that the new inflation figures are not enough justification for the RBA to make any moves on the interest rate front, as there is a lack of a "smoking gun" reason for change.
"Inflation is comfortable just below the RBA's 2 to 3 percent target band. Inflation isn't rapidly moving below the target band, nor is it rapidly lifting back into the target band," James said. "So the RBA can stay on the interest rate sidelines."
Hickie views concurred with James, and she believes that the figures released on Wednesday are not indicative of a "sustained pick-up" in underlying inflation as "GDP growth is likely to remain below potential again this year and next."
"Alongside the RBA's financial stability concerns, this explains why we doubt the RBA will begin to raise rates until 2019." Hickie said.
Latest comments