Our take on the latest Consumers price index (Fri 24 Jan 2020)
Inflation accelerated to 1.9%pa in the December quarter
Non-tradable inflation was 3.1%pa
Tradable prices steady, with inflation at 0.1%pa
The key numbers...
- Headline inflation increased from 1.5% to 1.9%pa. Headline inflation was above both the Reserve Bank’s and our forecasts of 1.6%pa in the December quarter.
- Services and non-tradable inflation remain the fastest-growing broad catergories, at 2.7%pa and 3.1%pa respectively.
- Additional heat came from goods inflation picking up to 1.3%pa, from 0.7%, and tradables inflation of 0.1%, turning positive after a -0.7%pa result in the September quarter.
- Notable increases include rental inflation at its highest level in 11 years (3.1%pa), while insurance, and meat, poultry and fish prices are both rising strongly, at 4.5%pa.
CPI components
Annual % changes
...and our reaction
- With inflation moving close to the mid-point of the Reserve Bank’s 1-3%pa target band, and GDP chugging along reasonably well, we expect the Bank to hold the official cash rate steady at 1.0% at February’s Monetary Policy Statement.
- High rental inflation, tax increases on cigarettes and tobacco, and increasing insurance and services inflation have kept non-tradable inflation high for the second quarter in a row.
- Although it’s good to see the economy heating up a little, the points of price pressure are not going to be well received by all. High rental price growth reflects the housing shortage and regulatory standards imposed on landlords, while rising insurance costs are becoming harder to swallow.
- Housing-related price increases also indicated that capacity continues to be a problem for the construction sector.
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