News

Australia: Biggest Quarterly CPI Plummet in 72-Year History

Consumer prices have taken a historical dip in Australia.

Here are more details from Australia's 9News (July 29):

Australia's consumer price index (or CPI) fell 1.9 per cent in June 2020 quarter, marking the biggest plunge in the history of the measurement.

New data from the Australian Bureau of Statistics (ABS) shows the dip was the largest quarterly fall in the 72-year history of tracking the CPI.

The CPI is a measure of retail prices of what the ABS calls a "constant basket of goods and services" for Australian households.

It includes things like the cost of childcare, fuel, education, household appliances and groceries.

This is how the ABS tracks inflation, or the gradual increase in the cost of goods over time.

According to the ABS, the annual inflation rate was a negative 0.3 per cent in the 12 months to June 2020 -- meaning Australia is officially in "deflation" for the third time since 1949.

Relatedly, Elliott Wave International's July Global Market Perspective provided these insights into U.S. price deflation. Here's a chart and commentary:

PriceDeflationGMP

The chart shows the velocity of the M2 money stock versus Core Consumer Price Index (CPI) on an annual percentage change basis. M2 Velocity is a ratio, calculated by dividing the nominal Gross Domestic Product by the M2 Money Stock. As more money is printed relative to the size of the economy, M2 Velocity declines. The chart shows that the annualized change in M2 Velocity has collapsed, as not only has M2 Money Stock expanded, but the economy has contracted.

Now look at its relationship with Core CPI, the annualized change in consumer prices excluding food and energy. Over the past 20 years there has been a distinct relationship, with the change in M2 Velocity leading Core CPI by around 7 quarters. Therefore, if this relationship holds, we must anticipate a huge drop in the year-on-year rate in Core CPI over the next 18 months or so.