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.
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