Price worries ease after Yule break

Carnell added most of the damage to inflation in December was done from one source, holidays

Reserve Bank of Australia Governor Philip Lowe hinted inflation pressures have remained constant. | Photograph courtesy of ING

Much of Australia’s recent inflation disappointment can be put down to one-offs or weather-related and other seasonal effects. But similar to the Philippines such effects that still leave inflation higher, and likely to come down slower than otherwise.

Price movement suggests that the Reserve Bank of Australia’s policy of a 25 basis points increase has longer to run before its peak, ING Regional Head of Research, Asia-Pacific Robert Carnell said.

Carnell added most of the damage to inflation in December was done from one source, holidays.

“With the month being peak holiday time in Australia and overseas visitors making the journey to see family and friends after, in many cases, long waits, it is perhaps not completely surprising to see some price pressure,” he added.

In December 2021, holiday prices rose 10.8 percent from the previous month.

A year after, they rose a staggering 27 percent month-on-month, which is almost double the highest monthly increase in recent history.

Inflation is also being addressed by the country’s central bank.

During the Philippine economic briefing held in Frankfurt, Germany, Bangko Sentral ng Pilipinas Governor Felipe Medalla said the inflation rate is driven by supply-side factors.

He said the government has been doing its best to address the issue, and among the solutions include speeding up the importation of several agricultural products such as rice, sugar and meat.

Food price shock

Last month, food prices were the big shock to the data, driven higher by poor weather and flooding. The December weather wasn’t particularly good either, and food prices, especially fresh fruit and vegetables, were up another three percent from the previous month, though the impact of the food and beverage component was offset this month by some declines in alcohol and tobacco prices.

Clothing bounced back after a big drop in November, and “confusingly, housing also delivered a strong lift to the overall index with house-purchase, rents and furnishings all delivering sizeable increases from the previous month,” the ING executive indicated.

The quarterly index with which most people are more familiar, showed inflation rising from 7.3 percent from a year ago in the third quarter to 7.8 percent in the fourth quarter.

The increase in inflation and its implications for policy rates has taken 10Y Australian government bond yields sharply higher. The 10-year yield is up about 13bp from its intra-day lows, and may not have stopped rising yet.

 


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