Economic recovery has begun: Morrison

Scott Morrison agrees with the Reserve Bank that the economic recovery from the COVID-19 recession is under way.

Even so, the prime minister also believes Australians and businesses are still hurting from the first recession in nearly 30 years.

“The recovery in Australia has begun and will continue under this government,” Mr Morrison told parliament on Wednesday.

RBA deputy governor Guy Debelle indicated to senators on Tuesday that the economy is now out of recession.

But Mr Morrison isn’t getting too carried away, pointing out that won’t be confirmed until the national accounts for the September quarter are released in December.

“Until then, whether technically that’s the case or not, I know Australians are still hurting,” he earlier told reporters.

“So the national accounts will say what they say, but what I know is in the many months ahead, there are businesses that are still not open again, there are people that will still need to get back into work. That’s the reality.”

What is known is the rate of inflation soared 1.6 per cent per cent in the September quarter, rebounding from a record fall in the previous three months, largely as a result of the end of the government’s free child care package.

The rise in the consumer price index was the biggest quarterly increase in 14 years, but it still left the annual rate of inflation at just 0.7 per cent, significantly below the RBA’s two to three per cent target band.

In the June quarter the CPI had collapsed 1.9 per cent, which had dragged the annual rate down to minus 0.3 per cent.

“There is likely to be further volatility in prices, as the full impact of the pandemic and re-opening of the economy feeds through,” BIS Oxford Economics chief economist Sarah Hunter said.

The key factor driving inflation in the September quarter was the end of the free child care package, which was introduced at the height of the coronavirus pandemic and helped drag the CPI down in the June quarter.

The Australian Bureau of Statistics said the cost of child care added 0.9 percentage points to CPI, and was the largest contributor.

Excluding the impact of child care, the CPI would have risen 0.7 per cent.

There was also a 9.4 per cent rise in fuel prices following a rebound in world oil prices.

Underlying measures of inflation – which smooth out wild price swings and is closely monitored by the Reserve Bank in terms of monetary policy – remain extremely subdued.

One measure – the so-called trimmed mean – rose 0.4 per cent in the quarter for an annual rate of 1.2 per cent. 

“It adds pressure on the RBA to deliver further easing at its next board meeting on November 3, especially given its recent shift in focus to actual rather than forecast inflation,” RBC Capital Markets head of strategy Su-Lin Ong said.

Economists expect the central bank will cut the cash rate from an already record low of 0.25 per cent to 0.10 per cent when its board meets next Tuesday following recent commentary by RBA officials.

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