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September quarter 1988 consumer price index

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Today's September Quarter CPI result of 1.9 per cent is clearly above expectations, and as such, makes the Budget forecast of 4 1/2 per cent for the year to June 1989 more difficult to achieve.

However, it always had been widely appreciated that the September quarter result was likely to be relatively high and that the big fall in inflation would be more apparent in later quarters.

This was because the full impact of a number of factors which would act to push down inflation would not be felt until well into the financial year.

In particular, there is a lag in the flow-through of reduced import prices caused by the appreciation of the Australian dollar.

In the September quarter the ABS index of wholly or predominately imported goods rose by 0.7 per cent, well below the 1.9 per cent increase overall.

However, we anticipate an even more beneficial influence in future quarters.

Also in the pipeline will be the beneficial impact of the Budget cuts to indirect taxes - only partly recorded in the September quarter - and price reductions flowing from the May Statement cuts to tariffs.




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In the September quarter itself, as widely anticipated, increased house prices formed a significant part of the quarterly rise in the consumer price index, contributing 0.4 per cent.

Also fresh fruit and vegetable prices - which rose sharply in the June quarter because of flooding - rose even further in the September quarter.

Some State Government charges also rose at an above average rate, especially in Sydney.

However, other items displayed a much more moderate rate of increase, with clothing rising only 0.4 per cent and petrol prices falling in some cities.

For the future, today’s Consumer Price Index result reinforces the Government's determination to secure the maximum possible anti-inflation benefit from next year's wage-tax trade-off.

The Government has always seen the July 1 tax cuts as an opportunity to bring about a fundamental reduction in Australia's inflation rate.

That is why we have made it clear that the size of the tax cuts to be made will be dependent on, first, wage restraint up to that date, and second, the quality of the trade-off we intend to negotiate with the ACTU.

It is also why the Government is determined to continue to restrain demand growth.

Those conditions were made clear at the time of the Budget and have been repeatedly stressed by Government Ministers since that date.

The Government believes a responsible trade-off next year will enable us to go on reducing the inflation rate which is essential for continued good economic performance and growth in living standards.