Free childcare and preschool drive biggest drop in consumer prices on record

Daniel Fowler
August 1, 2020

A phenomenon known as deflation has occurred, where prices are effectively shrinking, for the first time since 1961.

The country's consumer price index fell by 1.9% over the three months to June 30, according to the official Australian Bureau of Statistics.

This CPI measure hasn't gone backwards so dramatically in nearly 60 years but the quarterly plunge was the steepest since the early 1930s Great Depression, as a result of cheap petrol, free childcare and discounts on rent. Mr Hockman said: "Excluding these three components, the CPI would have risen 0.1 per cent in the June quarter".

'This was the largest quarterly fall in the 72-year history of the CPI, ' he said.

That was well-anticipated by the market, as was the sharp slide in oil and petrol prices - down 19.3% and primary education costs which dropped 16.2% because of changes in policy in NSW and Queensland.

This CPI measure hasn't gone backwards since 1960.

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In addition, the prolonged hot weather has resulted in a high demand for electricity and water, pushing prices of electricity up by 2% and prices of water up by 0.25% over the previous month.

Stats SA chief director of statistics Patrick Kelly said: "So for example, we recorded negative 0.5 and negative 0.6 in April and May".

"Rental rates are coming under pressure from multiple sources", he said.

The COVID-19 pandemic is set to push the Australian economy into a recession for the first time in 29 years as the coronavirus shutdowns spark the deepest downturn since the 1930s Great Depression. "But for now we think this inflation print will largely be looked through by the RBA, which had anticipated a negative annual headline inflation print for Q2 and weak core inflation (albeit not as weak as transpired)", added ANZ.

AMP senior economist Diana Mousina said large price falls were to be expected from government initiatives such as free childcare intervening in normal spending patterns.

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