Australia inflation turns negative – MarketWatch

SYDNEY – Australia’s annual inflation turned negative for the first time in 22 years in the pandemic-hit second quarter as government childcare subsidies and lower oil prices fueled the largest quarterly decline on record.

The country’s consumer price index fell 1.9% during the three months to June 30, according to the Official Australian Bureau of Statistics. Annual inflation fell to minus 0.3% from 2.2% three months earlier.

ABS said the government’s move to free child care from April 6 as part of its response to the economic impact of the coronavirus was the biggest driver of Australia’s first annual deflationary impression since March 1998.

The sector’s biggest drop in prices came from an 11% drop in household content and services, which included a 95% drop in childcare costs due to subsidies.

Fuel prices decreased 19% in the quarter, while falling education costs also weighed.

ABS chief economist Bruce Hockman said the overall CPI would have risen 0.1% in the quarter without those three factors.

The cost of food and non-alcoholic beverages increased 0.5% as vendors reduced the discount as demand for long-lasting items such as canned and dry goods increased.

A rebound is likely to occur in the third quarter as the child care subsidy scheme ended on July 12.

In 72 years of records, Australia has only had one annual deflation on two previous occasions, in 1962 and 1997-98.

Write to Stuart Condie at [email protected]