Our take on the latest Consumers price index (Wed 23 Jan 2019)
Inflation was unchanged at 1.9%pa
Core inflation advanced to 1.5%pa
Non-tradable inflation rose to 2.7%pa
The key numbers...
- There might finally be faint signs that prices are starting to rise in response to heavily compressed business margins. With profit margins under intense strain, businesses will need to either raise prices or go bust.
- Three indicators of underlying inflation – non-tradable inflation, core inflation, and inflation excluding petrol – all rose slightly in December, pointing towards a touch more heat in price growth.
- Underlying inflation remains at a level that should keep the Reserve Bank comfortable with its projections holding the official cash rate at 1.75% until mid-2020.
Consumers price index
Annual core inflation
...and our reaction
- Core inflation, which provides a better gauge of underlying inflation than headline CPI, reached its fastest rate since December 2011. Headline inflation excluding fuel also rose to 1.5%pa, after holding at or below 1.2%pa throughout the first three quarters of 2018.
- Non-tradable inflation – being the goods and services we can't import – ticked up slightly to 2.7%pa. Although this was the highest rate of non-tradable inflation since mid-2014, it not as strong as we think it should be given the squeeze on business margins.
- Lower fuel, food, and cigarette prices kept a lid on headline inflation in the December 2018 quarter, with annual inflation remaining at 1.9%pa. Recreation and culture prices rose 2.1%pa, the fastest growth since 2002.
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