ID :
35179
Thu, 12/11/2008 - 18:51
Auther :
Shortlink :
http://m.oananews.org//node/35179
The shortlink copeid
Inflation expectation at five-year low
Consumer expectations for inflation have fallen to a five-year low as fears about
the economic slowdown grow, a survey shows.
The Melbourne Institute survey also found, for the first time in the 13-year history
of the question being asked, that a majority respondents did not expect prices to
rise.
MI research fellow Sam Tsiaplias said a growing number of people now expected
deflation, when prices actually fall.
The MI poll of 1,200 consumers taken in early December showed a median inflation
expectation of 2.5 per cent for the next 12 months, a drop from November's 3.3 per
cent level.
It was also the lowest inflationary expectation since December 2003.
The number is a sharp turnaround from July, when historically high petrol prices had
pushed consumer inflation expectations to a record high of 5.9 per cent.
Dr Tsiaplias said worries about the Australian economy and the latest round of
massive interest rate cuts were reducing concerns about inflation.
"Notwithstanding the fourth rate cut in as many months, it appears the prospect of
slower economic growth is dominating consumer expectations," he said.
"There's a slowing economy: that's the reason interest rates are coming down so
much, so they're interrelated."
Just 48.6 per cent of respondents in the MI's December survey expected prices to rise.
It was the first time the majority of people surveyed had not expected prices to
rise since the MI survey started asking people in 1995 about rising prices.
In November, 61.7 per cent of people expected prices to rise while in July, 81.7 per
cent of consumers surveyed forecast rising living costs.
The proportion of consumers expecting prices to fall has risen for three consecutive
months, with 9.5 per cent tipping cheaper prices in December, compared with six per
cent in November.
Dr Tsiaplias said there was growing proportion of consumers who expected inflation
could undershoot the Reserve Bank of Australia's (RBA) two to three per cent target
band, or even go into deflation.
In December, 6.9 per cent of respondents expected inflation to fall within this
bracket, down from 9.5 per cent in November.
"Surprisingly, that fall is because people are giving negative inflation numbers,"
Dr Tsiaplias said.
"Because of that, the proportion expecting inflation to be two to three per cent is
smaller."
The latest decline in inflation expectations came about after the Reserve Bank
slashed official interest rates in December by 100 basis points, taking the cash
rate to a six-and-a-half-year low of 4.25 per cent.
Since September, the RBA has cut interest rates by 300 basis points, reversing the
dozen rate rises between mid-2002 and early 2008.
The RBA does not expect inflation to fall to the top of its target band until late
2010 but its forecast is based on inflationary pressures taking longer to ease
rather than deflation emerging in the economy.
The Australian economy grew by just 0.1 per cent in the September quarter, the
slowest pace in eight years.
the economic slowdown grow, a survey shows.
The Melbourne Institute survey also found, for the first time in the 13-year history
of the question being asked, that a majority respondents did not expect prices to
rise.
MI research fellow Sam Tsiaplias said a growing number of people now expected
deflation, when prices actually fall.
The MI poll of 1,200 consumers taken in early December showed a median inflation
expectation of 2.5 per cent for the next 12 months, a drop from November's 3.3 per
cent level.
It was also the lowest inflationary expectation since December 2003.
The number is a sharp turnaround from July, when historically high petrol prices had
pushed consumer inflation expectations to a record high of 5.9 per cent.
Dr Tsiaplias said worries about the Australian economy and the latest round of
massive interest rate cuts were reducing concerns about inflation.
"Notwithstanding the fourth rate cut in as many months, it appears the prospect of
slower economic growth is dominating consumer expectations," he said.
"There's a slowing economy: that's the reason interest rates are coming down so
much, so they're interrelated."
Just 48.6 per cent of respondents in the MI's December survey expected prices to rise.
It was the first time the majority of people surveyed had not expected prices to
rise since the MI survey started asking people in 1995 about rising prices.
In November, 61.7 per cent of people expected prices to rise while in July, 81.7 per
cent of consumers surveyed forecast rising living costs.
The proportion of consumers expecting prices to fall has risen for three consecutive
months, with 9.5 per cent tipping cheaper prices in December, compared with six per
cent in November.
Dr Tsiaplias said there was growing proportion of consumers who expected inflation
could undershoot the Reserve Bank of Australia's (RBA) two to three per cent target
band, or even go into deflation.
In December, 6.9 per cent of respondents expected inflation to fall within this
bracket, down from 9.5 per cent in November.
"Surprisingly, that fall is because people are giving negative inflation numbers,"
Dr Tsiaplias said.
"Because of that, the proportion expecting inflation to be two to three per cent is
smaller."
The latest decline in inflation expectations came about after the Reserve Bank
slashed official interest rates in December by 100 basis points, taking the cash
rate to a six-and-a-half-year low of 4.25 per cent.
Since September, the RBA has cut interest rates by 300 basis points, reversing the
dozen rate rises between mid-2002 and early 2008.
The RBA does not expect inflation to fall to the top of its target band until late
2010 but its forecast is based on inflationary pressures taking longer to ease
rather than deflation emerging in the economy.
The Australian economy grew by just 0.1 per cent in the September quarter, the
slowest pace in eight years.
