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It seems the markets and a gaggle of commentators are getting a little excited about the June quarter CPI which showed headline inflation at 3.0 per cent annual terms and the underlying inflation measure at 2.8 per cent. At face vale, both are near or at the top of the RBA 2 to 3 per cent target band and without any further analysis would suggest there is something of an inflation issue in the economy.
But when one bothers to dig into the numbers, it is clear that inflation is probably slowing and one-offs have been pushing those annual figures higher.
In six monthly annualised terms, the path for underlying inflation over the past two years has been:
There was a bit of a lift in the second half of 2013, which now appears to be a quirk, perhaps influenced by the AUD dipping through much of 2013 and adding to some import prices. Obviously that mini-spike will drop out over the next two quarters which suggests a gentle pull-back in the annual inflation rate is likely by year end.
Everybody knows, although not everybody admits it, that consumption of tobacco in Australia has fallen in the aftermath of the plain packaging laws which came into being in December 2012.
The Fairfax media group is reporting this morning findings from the National Drugs Strategy Household Survey that show smoking levels are in decline. Not at all surprisingly, the numbers from the NDSHS dovetail with the hard data on the volume of tobacco consumed from the Australian Bureau of Statistics. Those data show that the volume of tobacco consumed is 5.3 per cent lower in the March quarter 2014 compared with the December quarter 2012.
What is interesting is the fact that the NDSHS survey was conducted between July and December 2013, before the 12.5 per cent rise in tobacco excise took effect. The authors of the report noted: "We know that that tax has a lot of influence over consumption so it's really important that the data was collected before that".
"The only thing that happened in the 12 months before that was the introduction of plain packaging laws."
The key findings were:
The daily smoking rate plunged from 15.1 per cent to 12.8 per cent between 2010 and 2013.
Most people are now 16 before they smoke their first full cigarette, up from 14 in 2010, and 95 per cent of 12 to 17-year-olds have never smoked.