Inflation in holding pattern in March: officially speaking

The official inflation rate was 2.2% over the year-ended March 2020, within the target bands and the highest recorded annually for the last five and a half years. Quarterly inflation was just 0.3%, but that was way better than the 0.0% increase in the March quarter of 2019. Analysis suggests the rise in the March quarter had a lot to do with higher food prices linked to the drought and bushfire supply disruptions.

The chart below was starting to show some modest signs of improvement, but those will be short-lived, with all the indications being that the June quarter will see low and possibly negative inflation.


Fig. 9

To go straight to the dashboard and take a closer look at the data, click here.

Divergence in price movements across sectors was evident because of the different crises that impacted the nation, as Michael Janda pointed out on the ABC’s platforms.

In the quarter, food and beverage prices rose 1.9% thanks to the combined impacts of the bushfires and drought, but vegetables rose 9.1%, fruit 2.4% and beef 3.5%, as examples. Annually, food prices were up 3.2%, largely due to the impact of the drought.

March’s panic-buying and hoarding saw on-durable household items like toilet paper rise 3.4%. Supermarket turnover was up sharply in March.

But the price increases driving a higher inflation rate are likely to be suppressed in the June quarter. Lower fuel prices and reduced fuel consumption, falling accommodation and travel expenditure and others are likely to feed into lower prices.

Additionally, equipment prices for communications, audio-visuals and the like are at four decade lows.

Overall, we have to anticipate that the June quarter will see Australia entering a period where the cost of its goods and services, in aggregate, falls. Patchy it may be, but negative inflation will feed into the lower GDP that we can expect to see, as the country crashes into a likely deep recession.