NO.003

Today’s Consumer Price Index shows that Australia is a low inflation economy. The

All Groups CPI increased 0.6 per cent in the December quarter 1999 and

1.8 per cent in the year to the December quarter.

Since the Coalition Government was elected the CPI has averaged 1.1 per cent per annum.

Under the previous Labor Government (1983-1996) inflation averaged 5.2 per cent per annum.

The December quarter outcome was affected by several abnormal factors. Changed

arrangements to tobacco taxation increased the price of cigarettes and tobacco, while the

Government’s wholesale sales tax rate reductions, the majority of which were captured

in the CPI for the first time in the December quarter, exerted some downward pressure on

the prices of a range of items. In addition, the Government’s 30 per cent rebate on

private health insurance, which took effect in the March quarter 1999, reduced the

increase in the CPI over the past year, while increasing petrol prices in response to

higher world oil prices added to CPI growth over the same period.

Abstracting from these abnormal factors, the increase in the CPI is estimated to have

been 0.5 per cent in the December quarter and 1.9 per cent in the year to

the December quarter.

Transportation costs fell 0.4 per cent in the December quarter, after rising

3.3 per cent in the September quarter. The fall reflects a small increase in

petrol prices being more than offset by a fall in the price of motor vehicles. Petrol

prices increased by just 0.6 per cent in the December quarter, following a rise

of 8.8 per cent in the September quarter, as world oil prices stabilised to some extent.

The price of motor vehicles fell 1.6 per cent in the December quarter and have declined by

1.8 per cent over the past year.

House purchase prices increased by 3.2 per cent in the December quarter,

reflecting continuing strength in the residential construction sector as a whole. However,

households benefited from a fall in the price of communication services of 0.8 per cent in

the December quarter. The price of communications services is now at its lowest level

since 1987. Clothing prices also fell 0.9 per cent in the December quarter, reflecting

competitive pressures in this sector.

Fresh fruit prices fell 6.5 per cent in the December quarter. Banana prices

fell significantly as supply recovered from the effects of Cyclone Roma on the North

Queensland crop. Fresh vegetables prices increased by 2.0 per cent in the December

quarter, but have fallen some 14.3 per cent in the year to the December quarter.

These data confirm the success of the Government’s policy programme in delivering

a productive and efficient economy. Price and wage pressures remain moderate, in an

environment of strong economic growth, increasing productivity and healthy competition.

Implementation of the Government’s tax reform initiatives in the period ahead will

help to maintain Australia’s very strong overall economic performance.

CANBERRA

28 January 2000