Australian Economic Developments (25 July 2014)

This week’s ABS data showed that the headline CPI inflation accelerated further in Q2 2014, reaching 3.0% p.a., just within the RBA’s inflation target band of 2-3%. The recent repeal of the carbon tax had no influence on the Q2 inflation data and is likely to flow through to the CPI gradually over several quarters, if at all.

The EFIC SME Exporter Index showed that SME exporter sentiment improved in the June quarter. However, the recent appreciation of the Australian dollar is expected to provide less support for domestic exports over the rest of 2014.

As of 20 July, consumer sentiment was already showing signs of recovering from the Federal Budget shock, according to the weekly ANZ-Roy

Morgan Consumer Confidence Survey. ANZ economists note that some of this recovery in confidence appears to be due to the failure to pass unpopular measures through the Senate, so it is likely that further “developments in the Senate could be important for consumer confidence going forward”.

Australian Inflation Reaches 3.0% p.a.

At a headline level, the Consumer Price Index (CPI) rose by a modest 0.5% q/q in Q2 2014, following a rise of 0.6% q/q in Q1. The annual inflation rate accelerated to 3.0% this quarter, up from 2.9% p.a. in Q1 2014. While the year-ended pace of CPI inflation has steadily risen over the past two years, it remains within the RBA’s inflation target band of 2-3%.

For Enterprise Bargaining Agreements (EBAs) referencing the latest headline CPI inflation, this outcome will translate into higher wage demands for affected businesses.