Inflation figures on Friday added some weight to expectations that inflation will ease back over the coming year.
They weren’t the high-profile consumer price index (CPI) figures – they were released last week.
They were the less well-known producer price index (PPI) figures, which measure prices at the factory door or farm gate, before distribution costs, indirect taxes and trade margins.
And the key measure, the price index for final demand excluding exports, fell in the June quarter, the ABS revealed on Friday.
It was only a small fall, just 0.1 per cent, but it was enough to drag the annual growth rate for this measure down to 2.3 per cent, from 2.5 per cent previously.
That may have marked the end of a long upward trend in the annual growth rate for this price gauge, which had been as low as 1.0 per cent as recently as in 2012.
The RBA devotes its efforts to keeping CPI inflating in the two to three percent band on average over time.
And although the main reason for the fall in the June quarter was a drop in the imported component, with lower petroleum prices a big influence, the central bank would probably take heart from the domestic component of this index.
The domestic measure of producer prices rose only marginally, by 0.1 per cent, in the quarter.
Its annual growth rate was steady at 1.9 per cent, the ninth consecutive reading below the target range for the CPI.
The link between the PPI and the CPI is by no means strict, in large part because the CPI has a wider coverage, especially for services.
Even so, PPI’s docility is a good sign.
The RBA’s forecast in May that the headline CPI inflation rate would rise to 3.0 per cent over the year to June was vindicated by the figures last week.
From here, the latest RBA forecasts – to be updated next Friday – have the inflation rate edging back to 2.75 per cent by the end of this year.
If those forecasts pan out correctly, that would set the scene for the RBA to keep interest rates low and even, at a stretch, cut further if the economic outlook turned dismal.
And the tame PPI numbers show the RBA’s’s forecasts are on track.
