Skip to Content

Share this post

Chart of the week: Australia’s inflation is set to move higher

19 April 2018

Bob Cunneen, Senior Economist and Portfolio Specialist

Sources: NAB Business Survey and Australian Bureau of Statistics (ABC) Consumer Price Index

 

 

Australia’s inflation has been missing in action over recent years. While consumers have certainly felt the shock of rising electricity and health bills, the official inflation measure has shown subdued price pressures for many other goods and services. The ABS Consumer Price Index (CPI) shows Australia’s inflation was running at only 1.9 % in the year to December 2017 (blue line in chart).

Australia’s slow wages growth, more competitive pressures in the retail sector and subdued import prices with globalisation have been key factors driving this low inflation. However there are now some signs that inflation pressures are building. The NAB Business survey shows that capacity utilisation is rising steadily (red line in chart). This utilisation measures the percentage of business capacity that is currently being employed to produce goods and services. 

Rising capacity utilisation can suggest both increasing demand as well as stretched supply. For business, this can be a signal to increase investment to take advantage of future opportunities as well as potentially raise prices to improve profits. So rising capacity utilisation is suggesting that Australia’s economic growth and inflation rates are set to rise.

Important Information
This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.