# Latest Inflation Figures



## Timmy (29 July 2010)

CPI figures released by the Australian Bureau of Statistics yesterday, hailed as great news.  I will keep political references out of this post, bear with me.

The figs from the ABS release:
http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0


> JUNE KEY POINTS
> 
> THE ALL GROUPS CPI
> 
> ...




For those after more detail, check out that link (above) to the ABS.  

Some of the reporting, highlighting mine:


> *THE best set of inflation figures in three years* has saved the government and home buyers from a forecast interest rate rise next week.
> 
> The key measure of core inflation tracked by the Reserve Bank dropped to just 2.7 per cent for the year to June, the lowest since mid-2007,



http://www.theaustralian.com.au/nat...or-julia-gillard/story-fn59nsif-1225898200380




> The Reserve Bank board meeting will vote to leave interest rates on hold on Tuesday after the closely watched underlying rate of inflation slid to 2.7 per cent, *the first time it has been below 3 per cent and within the bank's target band for three years.*



http://www.theage.com.au/federal-election/inflation-figures-a-boost-for-gillard-20100728-10w66.html

It is very encouraging that inflation is low while the rate of job creation in the economy very strong:


> Australia created 45,900 jobs in June, the 11th successive month in which *employment has climbed, typically at the rate of about 1000 jobs per day.*



http://www.theage.com.au/federal-election/inflation-figures-a-boost-for-gillard-20100728-10w66.html

This combination of low inflation and jobs created at about 1,000 per day is great news for the economy.


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## miaad (29 July 2010)

Why I got the feeling that this is too good to be true? Low inflation rate with high employment rate?


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## moXJO (29 July 2010)

Timmy said:


> It is very encouraging that inflation is low while the rate of job creation in the economy very strong:
> 
> 
> This combination of low inflation and jobs created at about 1,000 per day is great news for the economy.




Something stinks in stat land. Jobs are very hard to come by at the moment. Had a few friends laid off from retail, one losing both her retail jobs in one week. And both those businesses closed down. 

Small business seems to be doing it tough and those in construction seem to be desperate. Had a mate that was in the construction industry (15 years) get so quiet, that he went back to working in clubs.
The main shopping centers seem to be packed. I am moderately busy still, but am constantly told from other tradies it's deathly quiet. Probably the worst conditions I have seen so far. Maybe just the time of year.


I know this is only at a micro level.  I would also be interested in NSW stats, because something doesn't add up.


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## trainspotter (29 July 2010)

*nervous grin* ..... Goes against the Philips curve completely ?


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## Timmy (29 July 2010)

moXJO said:


> Something stinks in stat land. Jobs are very hard to come by at the moment. Had a few friends laid off from retail, one losing both her retail jobs in one week. And both those businesses closed down.




It is certainly worthwhile digging deeper into the figures.  Job figures and CPI figures are an amalgamation of conditions right around the nation.  So,  plenty of jobs in WA, not so many in NSW.

This is time-consuming and often not simple, so luckily the answer to your *specific *question is in one of the newspaper articles (again, if you want to really dig deeper though, it is a case of DYOR unfortunately.  Doing so will show the numbers do 'add up').

Right down the bottom of the article in _The Age_ I quoted is this (my highlighting):


> Australia created 45,900 jobs in June, the 11th successive month in which employment has climbed, typically at the rate of about 1000 jobs per day.
> 
> *Almost all of the new jobs created in June were in the mining-dominated states of Western Australia and Queensland. *Those states have the fastest inflation in Australia, with prices growing at annual rates of 3.5 and 3.2 per cent. Prices in Melbourne climbed 3.1 per cent.



http://www.theage.com.au/federal-election/inflation-figures-a-boost-for-gillard-20100728-10w66.html


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## Timmy (29 July 2010)

trainspotter said:


> *nervous grin* ..... Goes against the Philips curve completely ?




Can you elaborate?


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## moXJO (29 July 2010)

Thanks for that Timmy.


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## trainspotter (29 July 2010)

Timmy said:


> Can you elaborate?




The "Philips Curve" represents the relationship between the rate of inflation and the unemployment rate. Phillips conjectured that the lower the unemployment rate, the tighter the labor market and, therefore, the faster firms must raise wages to attract scarce labor. At higher rates of unemployment, the pressure abated. Phillips’s “curve” represented the average relationship between unemployment and wage behavior over the business cycle. 

In theory that if inflation rates are low and employment figures are high means that we are due for a massive wage increase. Higher wages means inflation will go up. His theory not mine.

Taken from your post in relation "The Age" article ...... Almost all of the *new jobs *created in June were in the mining-dominated states of Western Australia and Queensland. Those states have the *fastest inflation* in Australia, with prices growing at annual rates of 3.5 and 3.2 per cent.


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## Timmy (29 July 2010)

Apologies in advance TS, I am not going to be around much today to respond, so will be brief.

I do have queries with the Philips Curve but on what you have begun to present re employment and inflation in the 'mining states', then rather than what you said in your first post to this thread:



> Goes against the Philips curve completely ?



on the contrary the theory would seem to be helpful in explaining whats going on there?


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## trainspotter (29 July 2010)

According to A.W. Philips the correlation is that high unemployment means low inflation and high employment means high inflation.

If we are in the flux of low inflation yet high employment then it goes against the "Philips Curve". Once again I reiterate ... his theory not mine. 

It was your post from "The Age" that made the same correlation. High emplyoment also equalled high inflation rates comparative to the rest of Australia.

More jobs = higher inflation = mining states example taken from the Age article
Less jobs = low inflation = "Philips Curve"

My response was to miiad's comment "Why I got the feeling that this is too good to be true? Low inflation rate with high employment rate?"


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## Tysonboss1 (29 July 2010)

:topic

what % inflation rate is a good rule of thumb to use if I want to estimate the effect infaltion and tax would have on a cash investment over say 20years.

I am just trying to get an idea of the % interest you would have to be earning so that a cash investment would be "breaking even" after you have deducted 30% income tax and the loss of buying power due to inflation.

Would a 3% inflation rate be a fair longterm average


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## trainspotter (29 July 2010)

Tysonboss1 said:


> :topic
> 
> what % inflation rate is a good rule of thumb to use if I want to estimate the effect infaltion and tax would have on a cash investment over say 20years.
> 
> ...




Most unionised economies trend between 2 & 6 per cent (target rate) if this helps.

Don't forget compound interest when you are constructing your matrix.


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## noie (29 July 2010)

Nice Post about Phillips curve, thanks very informative and concise 
it is appreciated from those deep in their learning phase.


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## Tysonboss1 (29 July 2010)

trainspotter said:


> Most unionised economies trend between 2 & 6 per cent (target rate) if this helps.
> 
> Don't forget compound interest when you are constructing your matrix.




I just did some rough calcs, if you interested.

Based on an inflation rate of 4% and an income tax rate of 30% you would need to be earning 5.1% compounded monthly to break even when it comes to using cash as a longterm store of value.

The biggest unknown is the true inflation rate each year.


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## trainspotter (29 July 2010)

Tysonboss1 said:


> I just did some rough calcs, if you interested.
> 
> Based on an inflation rate of 4% and an income tax rate of 30% you would need to be earning 5.1% compounded monthly to break even when it comes to using cash as a longterm store of value.
> 
> The biggest unknown is the true inflation rate each year.




Dependent on "other income" sources to use the 30% tax ruling surely? Assuming one is deriving an income of between $37,001 and 80k on a personal tax rate for this to kick in?

Imagine if Superannuation is "cash" ........ tell me why super is so good then?


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## Tysonboss1 (29 July 2010)

trainspotter said:


> Dependent on "other income" sources to use the 30% tax ruling surely? Assuming one is deriving an income of between $37,001 and 80k on a personal tax rate for this to kick in?
> 
> Imagine if Superannuation is "cash" ........ tell me why super is so good then?




I don't really know what you mean regarding your question on super, but some of the benefits of super is that as a vehicle it has a much lower overall tax rate.

But also most people would hold assets in their super not 100% cash. And overtime assets should always out perform inflation because all things being equal the value of the asset should increase atleast inline with inflation while the asset would also be producing earnings.


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## trainspotter (29 July 2010)

If you are holding cash in an interest bearing account then the 30% tax rate will only bite when you are earning an income above 37k and below 80k.

Assuming a 5% IR then you would need 750k in cash to get to this figure. If you have this kind of coin in an account then I certinly hope you have other assets similar to give a balanced portfolio. (not you personally)

Forget about my nonsensical reference to superannuation and it's tax benefits. I have a peeve for Super at the moment.

Anyways ....... the Inflation Figures are fantastic for the homeowners as interest rates are unlikely to go North whilst these kinds of numbers are being bandied around. Hurrah !


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## Tysonboss1 (29 July 2010)

trainspotter said:


> Assuming a 5% IR then you would need 750k in cash to get to this figure. If you have this kind of coin in an account then I certinly hope you have other assets similar to give a balanced portfolio. (not you personally)




Thats assuming that your sole income is the interest. Most people would already be earning over that amount from other sources so the 30% figure in my opinion is a good rule of thumb.

If some one was in the position of having interest from a cash deposit being there only income then they are in more trouble from inflation.

If they are spending their interest rather than using it to compound to offset inflation they are going to see the buying power of the interest will suffer  exponential decay to the point that they have to start using their original capital and then the capital will suffer exponential decay to the point they have nothing.


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## trainspotter (29 July 2010)

Agree with post #18 ...... but try telling this to investors who believe it is advantageous to have a large percentage of cash or short-term debt instruments available either due to falling financial markets or due to the availability of investment opportunities.


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## Tysonboss1 (29 July 2010)

trainspotter said:


> Agree with post #18 ...... but try telling this to investors who believe it is advantageous to have a large percentage of cash or short-term debt instruments available either due to falling financial markets or due to the availability of investment opportunities.




Thats what lead me to try and work out the break even point of a cash investment.

I believe the earnings from holding cash are so low(after tax and inflation), that at best a high interest cash investment will only hold pace with inflation or generate returns of about 1%, So it is definately not a good long term investment stratergy.

However it can be nessary to store cash at times when the various markets are trading on such high earnings multiples that a sound value investment can not be found, at times like this you would be better off holding the earnings from your existing investments in a high intrest account until the market corrects itself and gives you the opportunity to deploy your cash into an asset.

So I see cash as not really being an investment, rather it is a short term store of value that I wish to deploy into an asset as soon as the opportunity arises to enter an asset on good terms.


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## trainspotter (29 July 2010)

There is a theory out there called the SIP rule:

S = Shares
I = Interest Rates
P = Property

Shares usually lead the charge and money is poured into the market. Interest Rates begin to rise due to inflation. Market takes a dive and the money goes into fixed Interest deposits. Property starts to move. Interest rates fall. Money goes into Property. 

A very simple theory that can be either a short or long wave. I used to have a graph evidencing these fluctuations which dated back to about 1912 I think? The biggest example in recent memory was that most of the money that went into the Share Market was 2 years previous to the 1987 Black Monday crash. Then with interest rates going up to 17% in 1989. House prices kept on booming right up until 1991. Short wave that time.

Anyways ..... it's just a theory.


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## sinner (29 July 2010)

Hi Timmy,

I posted this article in another thread but it would fit well here. The RBA does not appreciate the current CPI measuring too much apparently. I sort of agree. Why do all the other developed economies release inflation data monthly but Australia only quarterly? The article states Australian CPI was first compiled in 1960. But are we still calculating CPI using the same formula? Or is the "old" CPI better reflective of underlying inflation now? 

There is a really nice interactive annotated chart in the article comparing headline (CPI) vs underlying inflation with the annotations noting the official explanation for each move:

http://www.news.com.au/business/rba-says-cpi-data-not-representative/story-e6frfm1i-1225842175839

Thoughts appreciated.


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## Timmy (30 July 2010)

Good article.  The first thing that occurred to me was to ask what five measures of inflation the RBA does use.

The second was to note that the graph, when updated with the most recent result, shows underlying inflation still below the headline rate of inflation.

I don’t know why Australia and NZ produce figures quarterly instead of monthly, certainly out of line with the rest of the world but I can’t find the reason(s).  

This, from the ABS, is required reading as in introduction to the CPI:
*6461.0 - Consumer Price Index: Concepts, Sources and Methods, 2009*
http://www.abs.gov.au/ausstats/abs@...e=Summary&prodno=6461.0&issue=2009&num=&view=

There are 14 chapters, it is detailed, so you will excuse me if I don’t attempt to answer your questions (any attempt to do so by me would be inadequate).  There are, though, some ‘summary’ points that might save you wading through the whole thing:


> 1.4 The CPI is reviewed and re-weighted every five or six years.
> The last major review of the CPI resulted in the 13th series of the index which was introduced in the September quarter 1998.
> Several important changes were made to the index at that time.
> 
> ...


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## Agentm (30 July 2010)

timmy

a great study is this one

http://www.melbourneinstitute.com/people/tsiaplias/aere_491.pdf

the conclusion,,,


The ABS CPI measures headline inflation in
the household sector, while the trimmed mean
and weighted median measures attempt to
capture underlying (or core) consumer inflation.
Statistically, the underlying measures exhibit
lower volatility and higher autocorrelation
levels than their headline counterpart. These
properties are useful for capturing inflationary
trends, and the RBA relies heavily on the underlying
measures for assessing medium-term
inflation levels and benchmarking the effects
of monetary policy. *There are several other
measures of inflation for the Australian economy.
The PPI measures inflation in the production
sector, the labour price index measures the
price of labour and the trade price indices measure
import and export prices*. Although the
consumption and non-consumption measures
capture prices for the same economy, their unconditional
contemporaneous correlation is insignificant.


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## Timmy (30 July 2010)

great info tks agentm


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## Knobby22 (30 July 2010)

Another reason wages have not risen quickly adding to inflation is undoubtably due to the high immigration rate.

i know in my field that I have many competitors who very recently came from countries such as UK and South Africa.


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## InsvestoBoy (29 April 2020)

Latest inflation figures out today


the above graphic h/t @Robert__Rennie from Westpac on twitter.

So inflation as of end of March was 2.19% YoY. up from December! All measures of core inflation were up YoY compared to December.

That's with a crashing oil price, Auto fuel down -6% QoQ.

So much for a deflationary impulse?


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## Dona Ferentes (29 April 2020)

InsvestoBoy said:


> Latest inflation figures out today
> View attachment 103053
> 
> the above graphic h/t @Robert__Rennie from Westpac on twitter.
> ...



Drought and bushfires.

yes, but wait for end-Jun


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## noirua (31 January 2022)

Spain Annual Inflation Decelerated to 6.1% in January
					

Spain Annual Inflation Decelerated to 6.1% in January



					uk.advfn.com
				



Consumer prices rose 6.1% on year in January following a revised 6.6% rise in December, according to a first estimate released Monday by the Spanish statistics office INE.


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## noirua (14 June 2022)

__





						German Inflation Hits Five-Decade High, Confirming Preliminary Estimates
					

German Inflation Hits Five-Decade High, Confirming Preliminary Estimates



					uk.advfn.com


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