Inflation improves
Some good news!
Inflation was lower than expected in February, coming in 2.4 per cent versus 2.5 per cent expected.
Source: ABS
The trimmed mean inflation figure was also lower than expected, declining to 2.7 per cent, which was the equal-lowest figure for underlying inflation since 2021.
Indeed, all of the analytical measures of inflation fell appreciably in February.
Source: ABS
And so, inflation has continued to fall pretty much unabated from 8.4 per cent to 2.4 per cent.
Cost of living relief
With the electricity price relief extended in the Federal Budget, disinflation is likely to continue, and the 6-month annualised pace for services price inflation has also fallen to just 2.3 per cent, suggesting that inflationary pressures have largely dissipated.
There was still quite high inflation reported for housing rents at 5½ per cent over the year - albeit the lowest since May 2023 - but in real time inflation in asking rents has fallen away to about 2 to 3 per cent, and so rents will likely continue to be disinflationary.
Meanwhile housing construction price inflation continues to fall from an eye-watering high of 21.7 per cent in July 2022, to just 1.6 per cent (h/t Shane Wright of Fairfax).
It looks like wages growth will be below forecast this quarter, and the quarterly inflation result will also almost certainly be soft, meaning that an interest rate cut by May appears somewhat more likely.
Australia now has a lower headline inflation rate than the US (2.8 per cent), UK (2.8 per cent), and Canada and (2.6 per cent).
The mid-wit trap?
Overall, inflation keeps falling, then.
The most widely held view has been that there are potentially risks of inflation taking off again due to international events, geopolitical risks, tariffs, or Australia's stronger than expected jobs market.
Maybe we've been over-thinking it, though, and we might instead be ultimately heading back to that pre-pandemic sort of environment where there was ultra-low inflation despite extremely low interest rates and regular bursts of QE in the US and Europe?
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In other news, quarterly engineering construction activity hit a record high $10½ billion in New South Wales on massive infrastructure spending, and at the same time a record high of $7¼ billion in Victoria.
Engineering construction is also trending higher in the resources states of Western Australia and Queensland, but remains well below the mining boom highs in these states.
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