Inflation figures expose carbon scare campaign
Some wrecking ball that was! Australia's first year with a carbon tax has ended with inflation so low that it was only the carbon tax that kept inflation from falling out of the Reserve Bank's target range.
The Bureau of Statistics reports that in the year to June, consumer prices rose 2.4 per cent on the raw data, 2.3 per cent after seasonal adjustment, and 2.2 per cent on the trimmed mean measure, which strips out the biggest price rises and falls to define underlying inflation.
If you take out the September quarter - as the next set of inflation figures will - then inflation over the nine months to June was running at an annualised rate of just 1.3 per cent. Underlying inflation is tracking at 2 per cent.
And while the dollar has fallen in the past three months and petrol prices have jumped, it's odds-on that the next measure of inflation will start with a 1.
That is low inflation by any measure. It shows the Coalition's scare campaign against the carbon tax was just a scare campaign. And it sets no bar to the Reserve Bank board cutting interest rates again on Tuesday week if it believes the state of the economy warrants it.
Most analysts think it does. In the six months to March, the economy grew at an annualised rate of 2.25 per cent, and output per head grew at an annualised rate of just 0.5 per cent. That is an economy clearly underperforming, and the data released since gives little reason to think it is growing faster now.
Before the inflation figures came out, financial markets had priced in a 67 per cent chance of a rate cut next week. After the data appeared, some took fright, because analysts had forecast that underlying inflation would rise by 0.5 per cent, and, woe! the average of the two measures the Reserve relies on was 0.6 per cent.
The RBA's two measures of underlying inflation are not equally reliable. The one which rose by more than expected (0.7 per cent) in the June quarter was the weighted median, which is very lumpy and prone to lean excessively either way, depending on the exact order of price rises for particular items. The Reserve has yet to disown it publicly, but it might as well.
The trimmed mean measure of underlying inflation rose just 0.5 per cent over the quarter and 2.2 per cent over the year. That implies that inflation is still where we thought it was: squashed down by a weak economy in which firms are ultra-cautious about raising prices.
Bear in mind that before the carbon tax came in, Treasury estimated that it would lift the CPI by 0.7 per cent, and underlying inflation by 0.4 per cent. If that's right - and some analysts looking at the data think the tax's impact was even less than that - then without the carbon tax, the CPI would have risen 1.7 per cent, and the trimmed mean by 1.8 per cent.
There is no sign in these figures that the carbon tax has had any impact after the initial bounce last September.