The fears of further pressure on a fragile Australian economy were raised again last week when the Australian Bureau of Statistics released its latest guesswork on inflation.
Thin analysis that appeared in many news reports set the hares running that inflationary pressure had built and that this would be putting pressure on the Reserve Bank to crank up interest rates.The last thing the delicate situation needs right now is a more downward pressure on consumer spending, which has stalled in 2011 much to the alarm of retailers of all forms.Consumer sentiment plunged in the latest assessment by Westpac and the Institute of Melbourne to the lowest since May 2009, when the flow-on effects of the global financial crisis were rippling through the economy. Blame it on any of the factors getting plenty of media play at present – debt crises, carbon tax, house prices, interest rate fears and the pressure to restore household savings.
According to the inflation numbers, the key movers in the list of goods and services shows that the hot spots for upwardly mobile prices are food (booking a 6% rise), energy, fuel and water charges.Just about anything else that consumers buy continued to fall in price according to the ABS.If a lift in interest rates is warranted in response to inflationary pressures, it should address overheating demand that is driving up costs of living. That isn’t apparent in any sector except the supply of labour to mines.
There are two major problems with the food CPI numbers that we’ve seen before.Firstly, the ABS seems to have made the same “Larry mistake” it made the previous time a cyclone bowled over the North Queensland banana crop, by failing to take account of the fact that only a small volume of bananas were available as a result.While unit prices have been very high, the cost of living impact across the board has been limited. The distorted gains in fruit prices have dragged up the entire food CPI result.The concept of “weighted average” isn’t endorsed in crunching inflation calculations.
The second issue is that just as the ABS put out its numbers with food CPI at 6% for the June quarter, two major grocers, with 60% of the spending on food, put out their own numbers on the weighted average of price changes in their businesses. They collectively showed price deflation that probably averaged out at 2.5% over the same period, with the effect of discounts and promotions continuing to drag down prices. Both have mounted major discounting campaigns that kicked off at the start of 2011, pulling prices on fast moving lines below what they were this time last year.The retailers’ numbers make more sense on this basis, leaving us to believe that prices for goods outside the supermarkets have bolted so sharply that the ABS is truly capturing the net effect.
I don’t think so.Sales non-retail channels are depressed according to my firm’s own tracking of household spending, and any price gains in those areas would be hard to achieve.
So, if we’ve got these sorts of issues in one sector, how reliable are the rest of the numbers?
Thin analysis that appeared in many news reports set the hares running that inflationary pressure had built and that this would be putting pressure on the Reserve Bank to crank up interest rates. The last thing the delicate situation needs right now is a more downward pressure on consumer spending, which has stalled in 2011 much to the alarm of retailers of all forms. Consumer sentiment plunged in the latest assessment by Westpac and the Institute of Melbourne to the lowest since May 2009, when the flow-on effects of the global financial crisis were rippling through the economy. Blame it on any of the factors getting plenty of media play at present – debt crises, carbon tax, house prices, interest rate fears and the pressure to restore household savings.
According to the inflation numbers, the key movers in the list of goods and services shows that the hot spots for upwardly mobile prices are food (booking a 6% rise), energy, fuel and water charges. Just about anything else that consumers buy continued to fall in price according to the ABS. If a lift in interest rates is warranted in response to inflationary pressures, it should address overheating demand that is driving up costs of living. That isn’t apparent in any sector except the supply of labour to mines.
There are two major problems with the food CPI numbers that we’ve seen before. Firstly, the ABS seems to have made the same “Larry mistake” it made the previous time a cyclone bowled over the North Queensland banana crop, by failing to take account of the fact that only a small volume of bananas were available as a result. While unit prices have been very high, the cost of living impact across the board has been limited. The distorted gains in fruit prices have dragged up the entire food CPI result. The concept of “weighted average” isn’t endorsed in crunching inflation calculations.
The second issue is that just as the ABS put out its numbers with food CPI at 6% for the June quarter, two major grocers, with 60% of the spending on food, put out their own numbers on the weighted average of price changes in their businesses. They collectively showed price deflation that probably averaged out at 2.5% over the same period, with the effect of discounts and promotions continuing to drag down prices. Both have mounted major discounting campaigns that kicked off at the start of 2011, pulling prices on fast moving lines below what they were this time last year. The retailers’ numbers make more sense on this basis, leaving us to believe that prices for goods outside the supermarkets have bolted so sharply that the ABS is truly capturing the net effect.
I don’t think so. Sales non-retail channels are depressed according to my firm’s own tracking of household spending, and any price gains in those areas would be hard to achieve.
So, if we’ve got these sorts of issues in one sector, how reliable are the rest of the numbers?