Australia: Melbourne tops the core inflation league table at 2.2%yr - Westpac

Justin Smirk, Senior Economist at Westpac, explains that the while considering Australian Core Inflation by Capital City, Melbourne tops the league table at 2.2%yr while core inflation is just 0.3%yr in Perth.

Key Quotes

“Westpac has taken the Consumer Price Index data for each capital city, seasonally adjusted the components using EX12, then trimmed the seasonally adjusted data creating a trimmed mean and weighted median series for each city.”

“From this analysis we find that in the year to the March Quarter 2017 the highest rate of capital city core inflation was found in Melbourne at 2.2%yr while the lowest rate was record in Perth at 0.3%yr. The national average rate of core inflation was 1.8%yr.”

“It is not surprising to see Sydney also recording a higher rate of core inflation than the national average (2.1%yr) while Brisbane came in just under the national average at 1.7%yr with Adelaide just a bit softer again at 1.6%yr.”

“Core inflation in Hobart was 2.3%yr while Canberra was a bit softer at 2.0% and core inflation in Darwin was only marginally stronger than Perth at 0.4%yr.”

“Looking at the major non-mining cities we can see that core inflation has gained some momentum and in regards to Melbourne and Sydney it is back within the lower half of the RBA’s target band (of 2%yr to 3%yr). And while Brisbane is a resources exposed city, it too has seen a gathering in core inflation back towards the RBA’s inflation target. Meanwhile in Perth, it appears that core inflation has found a base; the six month annualised pace has held around ¾%yr for three quarters now.”

“The mining cities of Perth and Brisbane together have an average rate of core inflation of 1.0%yr. The major non-mining capital cities have an average core inflation rate of 2.1%yr. The disinflationary impact of the unwinding of the mining boom may be the greatest in Perth overall but it has held back inflation in the cities that are most exposed to the resources sector.”

“In regards to Perth unless you think the rate of deflation in the property market can deepen, and current indicators suggest we have passed the point of greatest negative momentum, then it appears Perth has passed the low point for core inflation. On that basis Perth has managed to get through the unwinding of the largest mining boom recorded in that city without reporting a negative rate of core inflation.”

“Both Sydney and Melbourne have seen a pickup in headline inflation to around the mid-point of the RBA’s inflation target (2.4%yr and 2.5%yr respectively). And as noted above, core inflation for both is now in the lower half of the RBA’s target band. Given that the core inflation has found a base in the resources exposed cities then near-term upside risks for inflation emerge but our core view that competitive pressure in the retail space will continue will be constraint to these risks.”