CPI drops back to +3.0% but Core Inflation finally returns to the RBA’s target range

The headline CPI figure for the third quarter came in broadly in line with market expectations. The quarter-on-quarter increase was unchanged at +0.8% (actually unchanged at +0.76%) but the year/year increase fell back to +3.0% (from +3.8% in the June quarter) as base effects unwound.

However, what is far more interesting to market watchers, policy makers and the Reserve Bank are the measures of ‘core inflation’, trimmed mean and weighted median, which attempt to exclude the more volatile elements within the broad-based CPI and provide a measure that allows a more realistic view of what’s actually happening to prices over the cycle. Both these measures increased by 0.7% q/q and are now up 2.1% y/y. This is the first time since the end of 2015 that the average of these two measures has sat within the RBA’s target range of 2-3% for core inflation.

As we posted about last quarter, the headline CPI is actually a weighted average of series created from prices of a basket of goods and services in the eight Capital Cities. We attempted to account for the variations in spending patterns between Capital Cities and various State’s regions (by use of consumption expenditure data) to create an “All Australia CPI”. Details of how this was done can be found in our previous posts.

This quarter the “All Australia CPI” has increased by 0.9% q/q and is now up 3.2% y/y (down from 4.0% last quarter). Across most States the regions continue to experience slightly higher CPI than their respective Capital Cities.

Queensland has the fastest growth of all the States with the Brisbane index showing +1.3% q/q and +3.9% y/y while the Queensland regions are at +1.5% q/q and +4.1% y/y.

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