CPI soars as child subsidy ends

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October 29 2020
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The consumer price index has risen by 1.6 per cent for the September quarter following the end of free childcare and cheap fuel, official figures have revealed.

Results released by the Australian Bureau of Statistics revealed a rise following the largest quarterly fall in 72 years where prices went backwards by 1.9 per cent.

Childcare was the main contributor, with it dropping by 95 per cent as the government looked to support parents during the COVID-19 pandemic.

However, the subsidy ended 13 July, seeing the price rise again in the CPI for the September quarter.

“In the September quarter, childcare fees returned to their pre-COVID-19 rate, having been free during the June quarter. This was the largest contributor to the CPI rise in the September quarter. Excluding the impact of childcare, the CPI would have risen 0.7 per cent,” head of prices statistics at the ABS Andrew Tomadini said.

Over the quarter, there were also significant rises in alcohol and tobacco prices, while transportation jumped by 3.4 per cent, spurred on by rising oil prices.

Other notable increases in the September quarter included furniture, which grew by 6.4 per cent; major appliances rising by 5.3 per cent and small appliances, which rose 5.8 per cent.

“Strong demand and supply shortages led to price rises and less discounting for many household durable goods,” Mr Tomadini said.

He said annual inflation returned to positive territory, rising 0.7 per cent in the September quarter.

UBS economist George Tharenou stated that while it was the largest quarterly growth since 2006, it still only partially offset last quarter’s collapse.

“Outside these largely ‘exogenous’ one-offs [including the childcare subsidy being reversed], the rest of CPI rose by only 0.4 per cent, which is more consistent with an ongoing modest trend of ‘true’ underlying inflation pressure,” he said.

The economist pointed to the RBA now missing its 2-3 per cent inflation target for 19 consecutive quarters, with the central bank likely to reduce rates to help lift inflation and lower unemployment.

“For the RBA, governor Lowe recently changed their inflation target to actual (rather than forecast) CPI, and also further elevated the importance of the labour market by specifying they want to see more than just progress towards full employment.

“Given that the prior recovery of payrolls has stalled recently amid tapering of the JobKeeper [fiscal stimulus package], and underlying inflation today remains far below their target, we still think the RBA is likely to cut interest rates at their November 3 meeting, from 0.25 per cent to 0.1 per cent,” Mr Tharenou concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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