Inflation:the demons behind those good results

Essential items like food, housing, health  and education costs are still taking big bites out of Australian family budgets.

The Australian Bureau of Statistics reports that these costs have all risen by about 5 per cent over the past year.

Those – very big – rises  were of course largely  offset  by falling interest rates and lower petrol prices.  These pushed transportation costs down by 5.9 per cent over the year, while the price of a sector the Statistician calls financial and insurance services fell by 6.6 per cent in that time.

These movements – both up and down – are all huge by common statistical standards.

They show, very clearly, why it would be a mistake to become complacent about Australia’s present – relatively moderate – inflation rates.

The bureau also reported that Australia’s prices, overall, rose by just 0.5 per cent in the June quarter of this year and by a mere 1.5 per cent, over the year as a whole.

However  this  apparent moderation, on the bureau’s Consumer Price Index figures, is a direct result of the global financial crisis. And the worst of that crisis may already be over, even though, as Wayne Swan warns, its effects will still  be with us for a long time yet.

The crisis sent world oil prices tumbling, from a peak of about $US140 a barrel, to a low point below the $US40 mark.

But oil is still a very scarce commodity. And oil prices have, more recently, been rising again. Indeed, the Statistician reported that Australia’s petrol prices rose by 3.6 per cent in the June quarter.

Australia’s interest rates will inevitably rise, too, as the recovery takes hold.

Good rains, over much of Australia, did help families in the June quarter, though.

As good crops of fruit and vegetables reached the nation’s markets, those prices fell in the nation’s supermarkets.  Vegetable prices dropped by 6.9 per cent while fruit prices fell by 7.6 per cent.

A strengthening Australian dollar also gave overseas travellers a break.  The bureau reported that the price of overseas travel and accommodation fell by 3.4 per cent during the quarter.