Inflation monster loses its teeth
The Age
Thursday July 23, 2009
THE annual inflation rate has collapsed from 5 per cent to just 1.5 per cent in less than a year - the most dramatic slide on record.But far from celebrating the fall of the "inflation genie" - as Treasurer Wayne Swan has dubbed it, or the "inflation monster", as his Prime Minister has referred to it, Mr Swan sees the drop as a sign of an economy under siege."It's a reminder of the impact of the global recession," he said yesterday, adding that he expects unemployment to rise both this year and next.Mr Swan's Treasury advisers are understood to be more negative about the economy than is the Reserve Bank, which on Tuesday forecast a recovery as soon as this year.Sharp falls in the prices of men's underwear, fruit, vegetables, milk and bank charges helped offset big increases in the prices of women's underwear, hospital services, real estate and petrol, according to the Bureau of Statistics.The underwear stand-off was extreme. Whereas the prices of outer-garments were little changed in the June quarter, the Melbourne prices of men's underwear, nightwear and socks plummeted 8 per cent while the prices of women's underwear, nightwear and hosiery soared 7 per cent. The bureau reported the same pattern in other cities.It might be a result of the so-called "lipstick effect" in which women are said to spend more on cosmetics in depressed times as they reportedly did in the US after the September 2001 terrorist attacks. No such effect has been identified for men.Beer, another purchase said to be recession-proof, jumped in price by 1.3 per cent.A 6 per cent slide in the price of fruit and vegetables weighed down on inflation as did an apparent narrowing in the interest rate margins and fees charged by financial institutions. The price of "deposit and loan facilities" slid a further 4 per cent in the June quarter on top of a 14 per cent slide in the March quarter. The price of overseas holidays slid a further 4 per cent on top of a 4 per cent slide the previous quarter.Working in the other direction was a 3 per cent increase in the Melbourne price of petrol, clawing back some of the 26 per cent slide over the previous six months. Melbourne housing prices climbed a further 1 per cent and rents a further 1.3 per cent.Coalition Treasury spokesman Joe Hockey said that although the headline rate of inflation had fallen to its lowest level in a decade, the Reserve Bank's measure of "underlying inflation" remained uncomfortably high at 3.9 per cent for the year and up 0.8 per cent for the quarter."This suggests inflation is still a challenge," he said."There is no room for the Government to provide additional stimulus, let alone to continue with the waste and mismanagement in the stimulus program that it already has."Mr Swan said were it not for the stimulus measures "many more people, many more Australian families would be without a bread-winner".The Department of Employment national skilled vacancy index fell 1.7 per cent in the past month to be down 60 per cent over the year. Only Victoria bucked the trend, lifting advertised vacancies 0.5 per cent.
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