Inflation plunges -1.9%, Australia enters 'deflation'

author-avatar By on July 29, 2020
Inflation plunges -1.9%, Australia enters 'deflation'

Photo by Nathan Dumlao on Unsplash

Australia's consumer price index plunged -1.9% in the June quarter, marking the biggest quarterly drop in records dating back to 1948.

The -1.9% plunge in the headline consumer price index (CPI) smashed the -1.5% decrease recorded in the December quarter of 1953. 

"This was the largest quarterly fall in the 72 year history of the CPI," said Chief Economist for the ABS, Bruce Hockman.

This was driven by the impacts of the COVID-19 pandemic which squashed consumer demand for many products.

The ABS said COVID impacts via temporary free childcare, healthcare premium and rental deferrals, petrol prices and travel bans all contributed to the steep fall, while alcohol and tobacco were among the few products that increased in price. 

Childcare costs plunged -95%, followed by petrol prices (-19.3%), and pre-school and primary education (-16.2%). 

Mr Hockman said if it weren't for this, CPI would have risen albeit marginally.

"Excluding these three components, the CPI would have risen 0.1 per cent in the June quarter."

It brings the annual inflation rate to -0.3%, falling well outside the Reserve Bank's inflation target range of between 2-3%. 

"Since 1949, this was only the third time annual inflation has been negative. The previous times were in 1962 and 1997-98," Mr Hockman said.

Need somewhere to store cash and earn interest? The table below features introductory savings accounts with some of the highest interest rates on the market.

Provider
Total
interest
rate p.a.
Intro
interest
rate p.a.
Intro
term
Base
interest
rate p.a.
 
Online Saver
1.55% 1.20% 4 months 0.35% Go to site
2.00% 1.45% 4 months 0.55% More details
1.90% 1.10% 4 months 0.80% More details
1.50% 1.35% 4 months 0.15% More details
1.50% 0.15% 4 months 0.35% More details

*Data accurate as at 01 October 2020. Rates based on a savings balance of $10,000. Sorted by total interest rate. Refer to providers' websites for bonus rate conditions. Note that the base rate will apply once the introductory term has passed.

Notable price increases driven on the back of increased spending during the COVID-19 pandemic include cleaning products (+6.2%), toilet paper (+4.5%), furniture (+3.8%); major household appliances (+3.0%) and audio, visual and computing equipment (+1.8%).

The figures from the ABS fell just shy of economists predictions.

Westpac economists had forecast a -2.4% decline in the June quarter CPI, while the rest of the market had predicted a -2% fall.

Westpac senior economist Justin Smirk said the pandemic has extinguished hopes of a recovery.

"Despite many of the shocks being one offs that are set to be reversed, the COVID shutdown has shifted what we thought were signs of a recovery to a broader mixed outcome with signs of a underlying deflationary trend in many series again in Q3," Mr Smirk said.

"Looking at the big one offs it is important to distinguish which are policy induced (so there should be a quick rebound to previous levels as short-term assistance is unwound) and those induced by the collapse in demand (fuel prices due to the collapse in crude prices) which have already seen something of a rebound so far through the September quarter.

"These prices are not expected to make a full recovery any time soon."

Mr Smirk said the bank expects the CPI to bounce back by 2.1% in the next quarter, but warns it may not be enough.

"Even if we see the expected significant bounce in Q3 associated with the unwinding of government assistances packages, it will not be enough to drive a meaningful lift in underlying inflationary momentum."


Latest Articles

author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

Collections:

Get free insights & tips monthly

By subscribing you agree to the Savings Privacy Policy

Loading data please wait...

{{returnData.productName}}

Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Advertised Rate

{{returnData.advertisedInterestRate}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Advertised Interest Rate

{{returnData.advertisedInterestRate | percentage:2}}

Interest Frequency

{{returnData.interestFrequency}}


Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Additional repayments

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A

Maturity Alert

N/A