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June quarter consumer price index



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NO. 77

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PRESS

EMBARGO

STATEMENT BY THE TREASURER, THE HON P.J. KEATING, MP

JUNE QUARTER CONSUMER PRICE INDEX COMMONW EALTH PARLIAMENTARY LIBRARY C. I . s.

The 1987-88 Budget outcome, while about one per cent above our forecast in last September’s Budget, is consistent with the Government's more recent forecasts of a fall in inflation to around 4 1/2 per cent by this time next year.

This is especially so given that the downward force on prices from the recent appreciation on the exchange rate still has to be felt.

There are two main reasons for the 1987-88 increase being higher than the Budget forecast.

The first was the October stockmarket crash and subsequent fall in the exchange rate, which added to import prices.

In the June quarter just completed the price of imported goods was still being affected by the October depreciation, with the price of wholly and predominantly imported goods rising 2.0 per cent, following a 2.8 per cent rise in the March quarter.

The Government expects that it will not be until well into the new financial year that the full impact of the recent appreciation of the dollar will begin to flow through to reduced prices.

The June quarter has also been especially effected by a large increase in fresh fruit and vegetable prices, caused by the April floods.

Normally fresh fruit and vegetable prices fall in the June quarter; the atypical increase this June quarter accounted for a turnaround of 0.4 percentage points in the consumer price index when compared with the June quarter 1987.

An unwinding of those price increases will probably help contain CPI growth during 1988-89.

However, there is likely to be an upward impact on the CPI from the recently announced increases in State taxes and charges, particularly in NSW, and from last month's increases in mortgage interest rates, which are measured by the bureau with a lag.

On the other hand the May Statement cuts in import protection will help cut prices over the course of 1988-89.

Overall, the Government is confident that with a National Wage Case outcome in line with the Government's submission, Australians can look forward to a sharp fall in our inflation rate from the December quarter this year.

This outcome will be consistent with the maintenance of real wages over the course of 1988-89.

CANBERRA 26 July 1988