Goods and services prices plunge amid Australia’s coronavirus crisis
Australia’s prices of goods and services have plunged at the most drastic rate since records began in the 1940s, with the consumer price index – which measures inflation – dropping by 1.9 per cent in the second quarter alone.
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Prices of goods and services have fallen by the most since records began in the 1940s as the coronavirus pandemic up-ends the economy.
The consumer price index – which measures inflation – plunged by 1.9 per cent in the three months to June, an update from the Australian Bureau of Statistics released on Wednesday shows.
That was the biggest quarterly fall since the index started in 1948 while CommSec estimates is was the biggest three-month fall since late 1931 when the nation was gripped by the Great Depression.
The annual inflation rate came in at -0.3 per cent in the year to June.
That marks the first outbreak of annual deflation since 1998 when the nation was being buffeted by the Asian financial crisis and is only the third time annual inflation has been negative in the past 70 years.
The fall in prices was driven by the federal government’s move to make childcare free, with those costs for household plunging 95 per cent during the June quarter.
A crash in global oil prices resulted in petrol prices falling 19.3 per cent, while preschool and primary school education expenses fell 16.2 per cent as Victoria, New South Wales and Queensland made kindergarten free.
Excluding these components, the nation would have posted an inflation rate of 0.1 per cent for the June quarter.
While the overall cost of a basket of common goods and services fell — Melbourne rents were down 1.1 per cent — in-demand items posted steep price jumps.
The average price of cleaning and maintenance products rose 6.2 per cent while other non-durable household product, a category which includes toilet paper, were up 4.5 per cent.
The price of furniture was up 3.8 per cent, major household appliances 3 per cent and audio, visual and computing equipment 1.8 per cent.
Economists generally fear deflation as it can produce a downward spiral — when consumers think prices will fall, they put off purchases which hurts demand and ultimately causes businesses to sack workers.
CommSec chief economist Craig James said, while deflation was not expected to take hold, consumers needed to be given “every encouragement” to keep spending.
“If consumers start holding off on purchases on the hope of cheaper prices, then we will have a problem – a problem that would require more fiscal and monetary stimulus being applied,” he said.