Fruit, fuel, and furnishings: Inflation stuck below target

Inflation transitory and sagging

Headline inflation came in at 0.8 per cent for the second quarter, taking the annual pace up to 3.8 per cent... an apparently hefty figure which will likely capture the, erm, headlines.

But the inflation is likely to be transitory; and context is also important.

Basically with an outlying figure dropping off the annual measurement, the high headline figure is largely due to the base effect.

Looked at another way, inflation has effectively been running some way below target for about half a decade and counting.

The core inflation measures came in at 1.63 per cent and 1.67 per cent for the financial year, with the quarterly prints as follows:

Therefore, the underlying rate of inflation quickened a little, but remained below the 2 to 3 per cent target, as has been consistently the case since 2015.

For various measurement-related reasons the surge in regional housing rents is not reflected in the national rental CPI, which was stone dead flat over the year to June 2021 (you could make a similar point here about housing CPI overall, which was actually negative over the year). 

Due to the base effect, non-tradables CPI lifted to 4 per cent over the financial year. 

The wrap

Overall, there was some inflation in food, fuel, and furnishings, but with half of the Aussie population once again being impacted by restrictive lockdowns in Q3, the outlook for inflation has already shifted considerably. 

QE looks set to continue at the current pace for the remainder of the year, rather than any tapering coming into play.

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More credible detail on the inflation figures as always from data king James Foster here.