Yesterday the S&P ASX 200 Index was down 0.8%, which was partly due to the release of the September quarter Consumer Price Index (CPI) figures by the Australian Bureau of Statistics.

The CPI climbed 1.4 per cent during the September quarter with the main contributing sectors being housing and health care, which increased 3.2 percent and 2.4 per cent respectively.

The most significant individual price rises during the quarter were electricity (+15.3 percent), international holiday travel and accommodation (+6.6 percent) and medical and hospital services (+4.5 per cent).

The largest price drops were automotive fuel (-3.9 percent) and motor vehicles (-1.0 percent).

Last week Statistics New Zealand released its CPI figures for the September quarter which showed a 0.3 per cent increase. The main contributors were housing costs and vegetable prices.

Australia has an annual inflation rate of 2.0 per cent compared with New Zealand’s 0.8 per cent.

Inflation has a major impact on monetary policy and the ability of central banks to reduce interest rates. Yesterday’s higher than expected Australian rate has reduced the prospects of further interest rate cuts across the Tasman and, as a result, the New Zealand dollar fell slightly against the Australian dollar, to 78.9 Australian cents, following the CPI release.

These latest inflation figures indicate that the Reserve Bank of New Zealand has greater scope to cut interest rates than the Reserve Bank of Australia although economic conditions are slightly more positive on this side of the Tasman.

Victoria Harris

Research Analyst