Consumers ‘expect’ lower inflation

CONSUMER inflationary expectations for August fell to 4.5 per cent from 4.6 per cent in July, as the inflationary impact of the GST was downgraded.

This brings inflationary expectations back to April, 1999 levels.

The Westpac consumer expectations survey asked consumers to indicate by how much they thought prices of goods and services would rise in the next 12 months.

Westpac economist Justin Smirk shares the consumers’ sentiment, saying all signs pointed to lower inflation than expected.

“The GST has not had a long-term effect on inflation expectations, thus removing a source of potential wage pressures,” Mr Smirk said.

“It has also reduced the ability for retailers to price opportunistically during a period of high inflation expectations, a real risk when a new tax is introduced at a time of solid economic growth.

“The RBA will focus on how consumers’ inflation expectations respond to higher oil prices and a weak currency.”

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