Fed: CPI due next week, if anyone cares
By Colin Brinsden, Economics Correspondent17 Apr 2009 3:25 PM
CANBERRA, April 16 AAP - It really has become a non-entity.
While the federal government continues to avoid the "R" word, the "I" word has practically become extinct in most people's vocabularies.
Just 12 months ago, the consumer price index (CPI), the official measure of inflation, was on everyone's lips.
Price pressures were going through the roof, the Reserve Bank of Australia (RBA) was still raising interest rates and the then fairly new Rudd government was determined to put the "inflation genie" back in its bottle.
Household budgets were creaking under the weight of 12-year high mortgage rates, amid fears that another spike in inflation would see their loan repayments jump higher.
Motorists were wondering whether they could afford to drive to their local servo, let alone fill up when they got there, with petrol prices seemingly headed towards $2 a litre.
And Treasurer Wayne Swan was preparing his first budget, which would be tight and aimed at curbing price pressures.
One year on and the "I" word barely gets a mention.
The global recession has changed everybody's thinking.
The RBA has slashed the official cash rate by a staggering 425 basis points in the space of eight months and homeowners are enjoying a huge reduction in their mortgage repayments - even though the major banks aren't passing on all of the central bank's cuts.
Petrol prices have fallen back to around $1.20 a litre after world oil prices tanked because of the slump in global demand.
And Swan, while yet to say that Australia is in recession, is preparing us for a horror budget on May 12 with growth and revenue "substantially worse" than forecast just a few months ago.
If anyone is interested - after all, it is still one of our major economic indicators - the CPI for the March quarter will be released next Wednesday.
Nomura Australia chief economist Stephen Roberts says inflation has faded from the radar as everyone assumes it is on its way down.
"At some point in the more distant future, when the economy recovers out of this recession and starts to grow near its potential again, you then probably start to worry about potential inflation consequences," he said.
"The bigger threat at the moment is that it falls away too fast rather than picks up too much."
Falling prices, or deflation, would be a big concern in the current climate given the government is trying to encourage people to spend its one-off cash handouts to stimulate the economy.
Why would anyone spend today if goods are going to be cheaper in a month's time?
However, this doesn't appear to be a threat at this stage.
Taking into account the monthly private inflation survey by TD Securities-Melbourne Institute, Mr Roberts expects growth in the official annual CPI rate will ease to 2.8 per cent in the year to March.
The latest TD Securities-Melbourne Institute inflation gauge showed prices fell 0.1 per cent in March - led down by a drop in fuel prices - and partly offsetting fairly strong readings of 0.8 per cent and 0.7 per cent in January and February, respectively.
This left the annual reading at 2.6 per cent.
This is back inside the RBA's two to three per cent inflation target, and compares to the official 3.7 per cent rate in the year to December and a massive 5.0 per cent in the 12 months to September.
The annual underlying inflation measures the central bank uses to gauge monetary policy are expected to ease further, but will remain above the target for now.
But this won't stop RBA Governor Glenn Stevens cutting the cash rate again to cushion the economy in the worst global recession since World War II.
Indeed, financial markets are pricing in the risk of a further 75 basis points worth of reductions in the cash rate to 2.25 per cent this year in the expectation that the economy is going to get worse.
The economy has yet to record two consecutive quarters of negative growth, which would define a recession.
That is likely to occur when the national accounts for the March quarter are released on June 3, coming after the 0.5 per cent contraction in the three months to December.
Economists believe there is little doubt the economy is in recession given the pace at which the jobless rate has risen in the past three months - from 4.5 per cent in December to 5.7 per cent in March.
"If it is not a recession that is causing that, heaven help us if we do get one," Mr Roberts said.
