December quarter inflation lifts faster than expected amid Covid-19 stimulus

Unprecedented policy support amid Covid-19 has helped inflation rise faster than expected in the December quarter.

Consumer prices were supported by fiscal stimulus measuers. Picture: NCA NewsWire / Gaye Gerard

Australia’s headline inflation growth for the December quarter was stronger than expected, as the economy strengthened after unprecedented policy support in response to the COVID-19 pandemic.

Headline consumer price index growth quarter-on-quarter slowed to 0.9 per cent from 1.6 per cent in the September quarter, but exceeded a 0.7 per cent rise expected by market economists.

A 0.9 per cent rise in the headline CPI on a year-on-year basis also beat the market’s expectation for growth of 0.7 per cent.

The Australian dollar rose slightly after the report but later fell back to US77.52c.

At the “all groups” level, seven capital cities saw rises ranging from 0.6 per cent in Darwin to 1.5 per cent in Melbourne for the quarter, the Australian Bureau of Statistics said.

Perth was the only exception, recording a fall of 1 per cent due to the $600 household electricity credit introduced by the state government from November 1.

Tobacco prices rose in all capital cities, due to the annual excise tax increase of 12.5 per cent and the biannual excise tax increase based on Average Weekly Ordinary Time Earnings indexation, both applied on September 1, 2020.

Furnishings, household equipment and services rose in all capital cities due to child care, following the cessation of free child care on 13 July.

Out-of-pocket expenses for child care have now returned to pre-COVID-19 levels in all capital cities, the ABS noted.

Melbourne recorded a higher rise in the December 2020 quarter due to the increase in the out-of-pocket expenses for child care as attendance levels returned following stage 4 lockdown in the September quarter.

Health costs rose in all capital cities due to increases in private health insurance premiums on the 1 October 2020, following a six-month price freeze.

Potentially influencing the outlook for monetary policy were slight rises in underlying measures of inflation.

The trimmed mean CPI rose 0.4 per cent on quarter as expected, up from a downwardly-revised 0.3 per cent in the previous quarter.

On a year-on-year basis, the trimmed mean stayed at 1.2 per cent versus expectations it would fall to 1.1 per cent.

The weighted median CPI rose to 0.5 per cent on quarter, versus 0.4 per cent expected by the market, from a downwardly-revised 0.2 per cent.

The weighted median CPI on a year-on-year basis rose to 1.4 per cent, versus 1.2 per cent expected by the market, up from a downwardly-revised 1.2 per cent.