Growth keeps pressure on CPI

Western Australia’s robust economy is exerting a disproportionate influence on the national rate of inflation, with Perth’s inflation rate significantly above that of other state capital cities, according to recent data from the Australian Bureau of Statistics.

The latest Consumer Price Index figures show Perth’s CPI increased by 0.4 per cent in the December quarter, after rising 1.1 per cent in the previous quarter, with an annualised rate of growth of 4.4 per cent.

It was the 11th consecutive quarter that Perth’s consumer price growth remained above the national average rate.
Darwin was the only capital city to record a higher CPI for the year than Perth and was the only other city recorded as having a positive CPI growth.

However, Darwin’s size makes it unlikely to have significantly impacted on the national result.
Overall, the nation’s CPI was 3.3 per cent for the year, down 0.1 during the past quarter, with house prices, recreation and food being the core items to put pressure on inflation.

The major commodity to offset the upward pressure on inflation was petrol, decreasing in price by 12.4 per cent during the quarter.

Nationally, food increased in price by 8.6 per cent and housing was up 3.2 per cent.
The figures prompted deputy opposition leader Troy Buswell to draw a link between the state government’s handling of land releases, a key factor in huge housing price rises in the past year, and its impact on national inflation.

“The Carpenter government’s housing crisis is hitting home buyers with a double whammy because higher prices are putting pressure on interest rates,” Mr Buswell said.
However, an economic report released by Western Australia’s Department of Treasury and Finance pointed the finger at a higher than average recreation spend by WA holiday makers.
According to the report, recreation contributed 0.31 percentage points to Perth’s 0.4 per cent increase, driven mainly by domestic holiday travel and accommodation.

Nationally, recreation recorded its strongest quarterly increase since September quarter 2005, mainly due to a 6.2 per cent increase in domestic holiday travel and accommodation resulting from seasonal increases in accommodation tariffs and airfares. Overseas holiday travel and accommodation rose by 1.2 per cent.

While national CPI growth moderated to 3.3 per cent during 2006, exceeding the Reserve Bank of Australia’s target range for inflation, the bank’s December quarter measure of CPI excluding volatile items showed CPI growth across the nation was 2.7 per cent over 2006.
Another measure of underlying price pressures, the RBA’s trimmed mean measure of inflation, which also removes the impact of volatile items, increased by 2.9 per cent over 2006.

Grange Securities chief economist Stephen Roberts said in a statement that the RBA’s data could be sufficient to hold the bank back from a rate move in February.
“That’s probably enough to keep the Reserve Bank on hold, although it’s a difficult position because we know there’s going to be a dip in inflation in the first part of the year,” he said.

“But we didn’t expect it quite so much in the underlying [measures]. The risk with the global economy picking up and our economy picking up is that inflation pressures mount towards the year end and into 2008 and that’s the horizon that the Reserve Bank should be looking at when it sets policy.”