Inflation expectation bottoms out on weakening economy

Image of shoppers in Kuala Lumpur, Malaysia.

A weakening economy has pushed expectations of inflation rates over the next two years to a record low 3.2 per cent in June, according to Roy Morgan, well below the monthly average of 4.7 per cent.

Unlike the research firm’s other indexes, such as consumer price and confidence, the inflation expectations index is forward looking, giving an eye to how customers are feeling about the future of the economy.

The biggest decline was seen in Tasmania, where inflation expectations dropped from 4.9 per cent in February to 2.9 per cent in June, as the property market in Hobart flatlined during the Covid-19 pandemic. 

Melbourne, as well, fell 0.9 per cent during this period to 2.8 per cent during June.

The rapid decline in expectations in recent months is a sign of ongoing economic weakness, Roy Morgan CEO Michele Levine said, as the country entered its first recession in three decades. 

“The Victorian capital has experienced a spike in new cases of Covid-19 since mid-June and in response restrictions have been tightened progressively, with the Melbourne metropolitan area returned to a Stage 3 lockdown this week,” said Levine. 

“The renewed restrictions will place a great deal of pressure on businesses that have already endured more than three months of turnover well below normal levels.”

Levine notes that most areas of Australia have managed to flatten the curve and suppress the virus’ spread, though the renewed outbreak on Victoria serves as a stark reminder to remain vigilant. 

“The situation in Victoria clearly illustrates that the consequences of another nationwide outbreak would be devastating to businesses and the fragile economic recovery already underway,” Levine said. 

“All efforts must be undertaken to prevent this from happening.”

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