Inflation suffers biggest quarterly drop in history

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Inflation suffers the largest quarterly drop in history. Source: Getty

The Consumer Price Index (CPI), which is Australia’s main indicator of the rate of inflation, fell 1.9% in the June quarter – the biggest quarterly drop in 72 years of d history of the CPI.

This brings the annual inflation rate to -0.3% in the year to June 2020. This is the third time that annual inflation has been negative – the last time in 1997.

June’s quarterly decline was mainly the result of free childcare, a significant drop in fuel prices and a drop in pre-school and primary education, according to the Australian Bureau of Statistics (ABS ).

“Excluding these three components, the CPI would have risen 0.1% in the June quarter,” said ABS chief economist Bruce Hockman.

Some products bucked the trend and recorded price increases, such as cleaning and maintenance products, toilet paper, furniture, major household appliances and computer equipment.

The Prime Minister said the figures were “completely unique” to this “extraordinary circumstance”.

“Clearly the impact of the pandemic, which has reduced the COVID-19 recession, is having a negative impact on the economy and I think everyone understands that,” Scott Morrison said.

What deflation means to you

Earlier this year, the Reserve Bank of Australia hinted inflation should turn negative in Junethat prophecy now being fulfilled.

This means that the overall prices of goods and services will fall.

“Deflation typically results from a dramatic rise in unemployment and a collapse in income and aggregate demand,” said Jim Stanford, chief economist at the Australia Institute Center for Future Work. Yahoo finance earlier this year.

Stanford said deflation is usually associated with a depression and noted that Australia was “dangerously” close to one.

His comments preceded the government’s announcement that Australian debt will hit its highest level since World War II.

But lower prices aren’t necessarily good news for consumers, Stanford said.

“Of course, if you manage to keep your job and earn as much as you did before the pandemic, it may seem like your dollar will go further, he said.

“But it’s a sign of a broader macroeconomic meltdown that will end up being bad for everyone.”

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