Australia’s Consumer Prices Rise at Fastest Pace Since 2014

(Bloomberg) -- Australia’s headline inflation accelerated in the first three months of the year to climb back within the central bank’s 2%-3% target, reflecting how wildfire damage and the coronavirus shutdown impacted food prices before the pandemic sent the economy into a tailspin.

The consumer price index rose 2.2% from a year earlier, the fastest pace since the third quarter of 2014 and above the 1.9% median forecast in a Bloomberg survey of economists, data from the Australian Bureau of Statistics showed Wednesday. The trimmed-mean gauge, a key measure of core inflation, gained an annual 1.8%, exceeding forecasts of a 1.6% rise.

“Drought and bushfire-related effects impacted prices for a range of food products,” said Bruce Hockman, chief economist at the ABS. “There were some price effects of COVID-19 apparent in the March quarter due to higher purchasing of certain products toward the end of the quarter, as restrictions came into effect.”

The data span a period when wildfires damaged some produce lines and disrupted transport links early in the first quarter and households later stockpiled ahead of the coronavirus lockdown, meaning supermarkets didn’t need to discount. Since that time, the closing of the service sector and the plunge in oil prices suggest any inflationary uptick is likely to be temporary.

The report showed tradable-goods prices, which are typically impacted by the currency and global factors, fell 0.2% in the quarter from the previous three months due to a drop in fuel costs. Non-tradables, which are largely affected by domestic variables like utilities and typically contribute to underlying inflation, rose 0.6%.

The Australian dollar advanced after the data, and was trading at 65.20 U.S. cents at 12:08 p.m. in Sydney. It tumbled almost 13% in the first quarter before regaining ground this month as efforts to contain the epidemic showed signs of success.

Other details in the report include:

• Prices of fruits and vegetables jumped 6% and meat and seafood 2% in the quarter, with drought impacting supply and bushfires increasing transportation costs
• Automotive fuel prices slumped 6% in the first three months of the year as recent falls in world oil flowed through
• Compared to the previous quarter, the trimmed mean rose 0.5% and the headline CPI 0.3%, exceeding estimates of 0.3% and 0.2% gains, respectively

Oil has plunged nearly 70% since the start of the year as the coronavirus outbreak destroyed demand for fuel and Russia and Saudi Arabia engaged in a brief standoff. Since then, the world’s biggest producers have pledged to slash daily output.

The Reserve Bank of Australia, which targets 2%-3% inflation over time, has focused on combating the fallout from the pandemic, which is expected to result in the country’s largest economic contraction since the 1930s. The central bank cut the cash rate to the effective lower bound of 0.25%, began buying bonds to bring the three-year yield down to 0.25% and set up a lending facility to help offer firms cheaper borrowing costs.

RBA chief Philip Lowe said last week the fall in oil prices and various factors related to coronavirus could see headline inflation for the 12-month period turn negative in June, which would be a first since the early 1960s.

The governor also said it was plausible various restrictions imposed to contain the virus could start to be scaled back around the middle of the year and might be mostly removed by late-2020. Under such a scenario, the economy could be expected to grow “very strongly next year,” he said, estimating GDP growth of perhaps 6%–7% in 2021 after a fall of around 6% this year.

(An earlier version of this story was corrected to show the proper year the economy is expected to contract in the final paragraph.)

©2020 Bloomberg L.P.