Inflation expectations plummet

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Aussies expected inflation of only 4% per year over the next two years in February, with inflation expectations down 0.2% month over month and 0.4% annually, according to Roy Morgan.

Inflation expectations have dropped below the range they tracked for over two years and are now at their lowest since November 2016. Results have also declined below the nine-year average of 4.9%.

Roy Morgan CEO Michele Levine said that property prices in Sydney and Melbourne were among the drivers of the drop.

“The drop in inflation expectations is not surprising considering both cities have experienced significant declines in property prices over the past 12-18 months, as the housing markets in Sydney and Melbourne peaked in mid-late 2017,” Levine said.

Roy Morgan’s index found that Sydney and Melbourne posted the biggest declines in expectations. Inflation expectations in Sydney are down by a substantial 0.5% to only 3.7%. Melbourne’s, meanwhile, have slipped by 0.8% to 3.9%— the lowest in the Victorian capital since January 2017.

Inflation expectations are the lowest in Perth at only 3.5%— down 0.2% from 2018. The figure marks the lowest inflation expectation in Perth for since July 2017.

Inflation expectations were also down in the other major markets such as Adelaide (-0.3% to 4%), Brisbane (-0.3% to 4.1%), and Tasmania (-0.3% to 4.3%).

The states also recorded falls, with New South Wales’ inflation expectation decreasing to a record low since the index began nine years ago of only 3.8%. Western Australia’s expectations are down to 3.7% —the lowest figure logged compared to any other state.

Victoria inflation expectations have dropped below the national average to 3.9%, the lowest in that state since November 2016.

Inflation expectations in the other three states are all above the national average but fell in February, with South Australia down to 4.2%, Tasmania down to 4.3% and Queensland down to 4.4%

Queensland now holds the highest inflation expectations among the states.

“The continuing decline in inflation expectations, as well as the drop in Australia’s largest housing markets of Sydney and Melbourne, are increasing pressure on the federal government to deliver an expansive federal budget in two weeks to stimulate the economy as well as for the RBA to cut interest rates in the near future,” said Levine.

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