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Economic growth is strong THE All Groups Consumer Price Index (CPI) rose by 0.7 per cent in the September quarter 2007, to be 1.9 per cent higher than a year ago.Major contributors to inflation in the quarter included housing, food (in particular fruit and vegetables), financial services and recreation. These increases were partially offset by lower household services, automotive fuel and audio, visual and computing prices. Excluding volatile items (fuel, fruit and vegetables) the CPI rose by 0.7 per cent to be 2.6 per cent higher through the year. The Reserve Bank of Australia's Trimmed mean and Weighted median measures rose by 0.9 and 1.0 per cent respectively in the quarter, to be 2.9 and 3.1 per cent higher through the year. The food component of the CPI increased by 1.9 per cent in the September quarter and contributed 0.3 of a percentage point to quarterly inflation. This was largely driven by strong increases in fruit and vegetable prices (up 8.8 per cent), reflecting unseasonal weather conditions. Current pressure on food prices reflects unfavourable weather conditions and low water allocations in the Murray-Darling Basin. Housing costs rose by 1.8 per cent in the September quarter and contributed 0.4 of a percentage point to quarterly inflation. This reflected increases in both rents (up 1.6 per cent) and house purchase prices (up 1.0 per cent). Financial and insurance services prices rose by 2.0 per cent and contributed 0.2 of a percentage point to quarterly inflation. This was due to significant increases in both deposit and loan facilities and other financial services prices. Automotive fuel prices decreased by 3.7 per cent in the September quarter and subtracted 0.2 of a percentage point from quarterly inflation. Other major subtractions from quarterly inflation include household services (down 9.0 per cent) and audio visual and computing prices (down 1.2 per cent). Child care prices decreased by 33.4 per cent in the September quarter and subtracted 0.2 of a percentage point from quarterly inflation. This was due to the impact of the inclusion of the Child Care Tax Rebate in calculating the "net" change in childcare cost for the first time and the additional 10 per cent indexation of the Child Care Benefit on top of the usual annual CPI indexation. Looking forward an easing in underlying inflation is expected as demand pressures ease and growth in unit labour costs slows as productivity strengthens. The current surge in investment is delivering increased capacity, now starting to show in strong output and productivity growth. The Government's sound economic management has ensured that the Australian economy has the flexibility to adjust to substantial price fluctuations. Decentralised industrial relations is preventing an outbreak of unsustainable wage demands as has happened in previous times of large rises in the terms of trade. Australian households are benefiting from the higher standard of living that comes with solid economic growth, sustainable wage growth, near record labour force participation and the lowest unemployment rates in 33 years. |
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