Inflation takes a holiday

An unexpectedly sharp slump in food prices saw price inflation drop 0.2% in the last three months of 2012.

Today's consumer price index figures were expected to show a flat result. It has been negative or flat in four of the last five years for the last three months of the year, and the only exception was the year GST was hiked from 12.% to 15%.

The quarterly result takes annual inflation to 0.9%, just below the Reserve Bank's target band of 1-3%.

That may lead to calls for a longer "hold" by the Reserve Bank, amid growing talk of when governor Graeme Wheeler will start lifting the official cash rate from its present level of 2.5%. 

Offsetting that is the fact the bank has to set the OCR based on calculations of what inflation and the wider economy will be doing in about 12 to 18 months, and also that the OCR is currently at stimulatory levels.

The "trimmed mean" for the index – that is, the price inflation  figure with the more volatile elements stripped out of it – showed an annual increase of between 0.9% and 1.3%.

Housing and household utility prices were the main upward pressures in the last three months of 2012, rising 0.6%, mostly because of higher prices for new houses, rentals and property maintenance services.

Prices in the smaller transport group also rose 0.6%.

Food prices fell 1.8% for the quarter, due to seasonal falls in prices for vegetables, which fell 16%. Furniture prices fell 6.2% for the three months to December 31, and telecommunications prices slid 1.7%.

Over the year, the main price increases were housing and household utilities, up 3.0%, and alcoholic beverages and tobacco, up 5.3%, mostly due to hikes in excise taxes.

Within those groups, electricity prices was the largest contributor, up 5.2%, followed by local government rates, up 4.3%, new houses, up 3.1%,  and house rentals, up 2.4%.

Prices which fell over the year were fresh milk, down 9.5%, telecommunications services, down 5.7%, and audio-visual services, down 17%.

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It makes my blood boil to see the two leading price hikers were the electricity companies and the council rates.

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What relevance do the inflation figures really have?
The most expensive item for any familly is housing. The high inflationary cost of housing do not officially appear in the the inflation figures.
I guess the official inflation figures make our politicians look good when house prices are going into orbit.
When it comes to increases in income, most companies use the official inflation figures which, as suggested above, are meaningless.

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It's good to see that privatisation of our electricity industry is keeping costs down. Must be all that vigorous competition in the wholesale and retail sector.

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Furniture appliances and veggies go down in price, housing electricity and fuel go up. Can live without the furniture and appliances as they are discretionary but need the power and housing. etc. Why have I heard no pointing out of that fact, just blind reporting ignoring the elephant in the room as always... This inflation figure is actually meaningless in the real world and just reveals excessive inflation in non-discretionary areas with no balancing income boost making everyday life that much more difficult. Tragic yet predictable.

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