Our take on the latest Consumers price index (Fri 23 Oct 2020)
Annual inflation softens to 1.4%pa
Food prices remain elevated by supply issues
Transport costs remain subdued
The key numbers...
- Inflation remained soft in the September quarter, sitting at just 1.4%pa compared with a market expectation of 1.7%pa.
- Local government rates increases of only 3.1%pa instead of the usual 5%pa growth of recent years, although other post-lockdown price rebounds in the September quarter weren’t as strong as expected.
- Fuel prices are still down 11% from a year ago and dragged overall transport prices down by 3.9%pa, with falling car prices (-0.4%pa) and still cheaper public transport (-0.3%pa) also contributing to the fall.
- Food prices remained higher as supply issues hit supermarkets for vegetables like tomatoes and courgettes.
Food prices rise as supply issues bite
Annual % change, selected price groups
...and our reaction
- Today’s inflation result confirms that there’s not a lot of general heat in prices.
- The softness in inflation strengthens expectations for further stimulus from the Reserve Bank, virtually guaranteeing the introduction of a Funding for Lending Programme at November’s Monetary Policy Statement.
- With inflation below expectations, and without any signs of pricing pressures, the Reserve Bank will want to drive down interest rates further to try and stimulate demand – not necessarily to push prices higher in the near-term, but more to stabilise them and prevent prices from falling further.
- Weak demand will persist as the economy runs at a slower pace, with greater price competition to attract spending and a lack of interest in raising prices when incomes are lower.
- The acute pricing pressures that are present for some goods, such as vegetables and small appliances, highlights the supply chain disruptions that are likely to persist as local and global suppliers adjust to the effect of COVID-19 on economic activity.
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