Oil and credit crunch inflating problem

By: Troy Bilsborough


Wednesday's inflation figures show that Australia's substantial inflation problem has been made worse by skyrocketing global oil prices and the

Wednesday's inflation figures show that Australia's substantial inflation problem has been made worse by skyrocketing global oil prices and the global financial crisis, according to Wayne Swan.

The Federal Treasurer says Australia is facing the most difficult global economic conditions in a generation and inflation is a major part of that challenge.

The CPI rose by 1.5 percent in the June quarter, driving the annual rate higher to 4.5 percent. Excluding the impact of the GST, inflation is running at the highest rate since the December quarter 1995.

RBA measures of underlying inflation indicate that price pressures remain widespread. The trimmed mean inflation measure was 1.2 percent in the June quarter to be 4.3 percent higher over the year and weighted median inflation was also 1.0 per cent higher in the quarter to be 4.5 percent higher over the year. Both of the RBA measures remain at their highest level in more than 16 years.

Rising global oil prices, flowing through to domestic fuel prices, contributed significantly to the quarterly CPI outcome. Automotive fuel prices rose by 8.7 percent in the quarter, and are up 18.4 percent through the year.

The price of deposit and loan facilities also rose strongly in the quarter, up by 9.5 percent to be 16.2 percent higher over the year. The rise has been driven by tighter credit conditions arising from the global financial crisis, as well as an ABS correction for under-estimation in previous quarters.

Housing costs also contributed to inflation. Continued low vacancy rates and strong demand for housing have driven rents higher across all the capital cities. Rents increased by 2.2 percent in the quarter, the largest quarterly rise since 1989, to be 7.7 percent higher through the year.

"[Wednesday's] inflation figures are further confirmation of the need to address the build up in inflationary pressures of the last few years, now made much worse by global factors," says Swan.

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