The Housing Industry Association (HIA), the voice of Australia’s
residential building industry reports that the annual rate of inflation eased
slightly during the September 2014 quarter. This reaffirms the widely held view
that interest rates will remain at record lows for some more time.
The headline rate of annual inflation eased back to 2.3 per cent in the
September 2014 quarter, a significant drop from the 3.0 per cent rate during
the previous June quarter. The key measures of underlying inflation stood at
2.5 per cent and 2.6 per cent, respectively during the quarter, thereby
remaining comfortably within the RBA’s inflation target range.
According to HIA Senior Economist Shane Garrett, the rather large
reduction in the pace of inflation has been assisted by the one-off influence
of the carbon tax repeal. He explains that the housing component of the Index
provides a good example of the impact of carbon tax on households with
electricity price dropping 4.4 per cent in the September 2014 quarter, and by
5.1 per cent over the year.
Shane Garrett also noted that the sub-component of consumer price index tracking
movements in the price of new homes purchased by owner occupiers (excluding
land), increased by 1.1 per cent in the September quarter and by 3.8 per cent
over the year. This modest growth provides a stark contrast to the aggregate
price growth, which is predominantly driven by established homes and the land
on which they sit.
He observed that policy makers must address the high cost of delivering
residential land to market to tackle the housing affordability challenge.
He also added that inflationary pressures that would sway the RBA into tightening
interest rates are not likely to emerge as long as economic growth remains
below par, labour markets remain soft, governments maintain a firm grasp onto
the purse strings and businesses lack an appetite to invest.
