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Inflation Expectations down to new record low in June of 3.2%

Source: Roy Morgan Single Source: Interviews an average of 4,400 Australians per month aged 14+ (May 2010 – June 2020).
In June Australians expected inflation of 3.2% annually over the next two years. This result signified a new record low for the index – down 0.1% points on May and a significant 0.8% points on the pre-COVID period of February 2020.

Inflation Expectations have declined around the nation, however the magnitude of the drop has been far larger in some places than others – notably Melbourne where Inflation Expectations have dropped 0.9% points since February to only 2.8% in June.

The biggest decline has been in Tasmania, down from 4.9% in February to 2.9% in June, a drop of 2% points as Hobart’s formerly hot housing market has cooled during the COVID-19 pandemic.

Adelaide experienced the least change, with Inflation Expectations of 3.7% in June down only 0.1% points since February while expectations in Brisbane, Sydney and Perth are down by 0.5-0.6%.

Inflation Expectations Index long-term trend – Expected Annual Inflation in next 2 years

Source: Roy Morgan Single Source: Interviews an average of 4,400 Australians per month aged 14+ (May 2010 – June 2020).

Roy Morgan CEO Michele Levine says the rapid decline in Inflation Expectations in recent months is a sign of ongoing economic weakness as Australia experiences its first recession for three decades:

“Australian Inflation Expectations continued their decline in June, down 0.1% points from May to a new record low of only 3.2%. The result came as Treasurer Josh Frydenberg confirmed in June Australia was in its first recession since the early 1990s.

“The sharpest declines have been in Melbourne and Tasmania. 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. 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.

“The surge in new cases in Melbourne has also led to the Tasmanian Government extending its State of Emergency until the end of August – Tasmania’s economic dependence on Victorian businesses and tourists is larger than for any of the other mainland states. The island border remains closed to visitors until at least late July.

“Although most parts of Australia appear to have flattened the curve and suppressed COVID-19 to almost negligible levels (of Australia’s known 886 Active Cases on July 9 – 860 (97%) are in Victoria), the renewed outbreak in Victoria also provides a stark warning to other jurisdictions about remaining 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. All efforts must be undertaken to prevent this from happening.”

Inflation Expectations by Capital City February 2020 cf. June 2020

Source: Roy Morgan Single Source: February 2020, n=4,075 and June 2020, n=5,767. Base: Australians aged 14+.

At a State based level people in South Australia (3.5%), New South Wales (3.4%) and Queensland (3.3%) have the highest Inflation Expectations over the next two years. People in Western Australia (3.0%), Victoria (2.9%) and Tasmania (2.9%) have Inflation Expectations slightly below the national average and those in the ACT have the lowest expectations of price increases of all, at only 2.2%.

See below for a comprehensive list of RBA interest rate changes during the time period charted above.

Roy Morgan June Inflation Expectations are based on personal interviews with a nationally representative sample of 5,767 Australians aged 14+.

The questions used to calculate the Monthly Roy Morgan Inflation Expectations Index.

1) Prices: “During the next 2 years, do you think that prices in general will go up, or go down, or stay where they are now?”

2a) If stay where they are now: “Do you mean that prices will go up at the same rate as now or that prices in general will not go up during the next 2 years?

2b) If go up or go down: “By about what per cent per year do you expect prices to (go up/ go down) on average during the next 2 years?”

3) “Would that be (x%) per year, or is that the total for prices over the next 2 years?”

The Roy Morgan Inflation Expectations Index is a forward looking indicator unlike the Consumer Price Index (CPI) and is based on continuous (weekly) measurement, and monthly reporting. The Roy Morgan Inflation Expectations Index is current and relevant.

Monthly Roy Morgan Inflation Expectations Index (2010 – 2020)

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Yearly

Average

2010

n/a

n/a

n/a

5.9

5.8

5.5

5.6

5.4

5.5

5.8

5.6

5.8

5.7

2011

6.6

6.4

6.4

6.2

6.1

6.2

6.1

5.8

5.7

5.8

5.5

5.5

6.0

2012

5.4

5.5

5.9

5.9

6.0

6.2

5.9

5.9

5.8

5.7

5.6

5.4

5.8

2013

5.2

5.1

5.3

4.9

5.2

4.9

5.3

5.0

4.8

4.9

4.8

5.0

5.0

2014

5.1

5.2

5.2

5.1

5.1

5.3

5.0

4.8

5.0

4.8

4.9

4.4

5.0

2015

4.4

4.3

4.5

4.5

4.2

4.4

4.4

4.5

4.5

4.2

4.4

4.5

4.5

2016

4.3

4.2

4.2

4.2

4.0

4.0

4.1

3.9

4.1

4.1

3.9

4.2

4.1

2017

4.5

4.4

4.4

4.4

4.3

4.2

4.3

4.5

4.4

4.5

4.5

4.5

4.4

2018

4.5

4.4

4.3

4.5

4.3

4.5

4.3

4.3

4.3

4.5

4.3

4.2

4.4

2019

4.2

4.0

4.0

3.7

4.1

3.8

4.1

3.9

4.0

4.1

3.9

4.0

4.0

2020

3.9

4.0

4.0

3.6

3.3

3.2

3.7

Monthly
Average

4.8

4.8

4.8

4.8

4.8

4.7

4.9

4.8

4.8

4.8

4.7

4.8

4.8

Overall Roy Morgan Inflation Expectations Average: 4.8

RBA interest rates changes during the time period measured: 2010-2020.

RBA – Interest rate increasing cycle (2010):

2010
April 2010: +0.25% to 4.25%; May 2010: +0.25% to 4.75%, November 2010: +0.25% to 5%.

RBA – Interest rate cutting cycle (2011-2013, 2015-2016 & 2019-2020):

2011
November 2011: -0.25% to 4.5%; December 2011: -0.25% to 4.25%.

2012
May 2012: -0.5% to 3.75%; June 2012: -0.25% to 3.5%; October 2012: -0.25% to 3.25%;
December 2012: -0.25% to 3%.

2013
May 2013: -0.25% to 2.75%; August 2013: -0.25% to 2.5%.

2014
There were no RBA interest rate changes during 2014.

2015
February 2015: -0.25% to 2.25%; May 2015: -0.25% to 2%.

2016
May 2016: -0.25% to 1.75%; August 2016: -0.25% to 1.5%.

2017
There were no RBA interest rate changes during 2017.

2018
There were no RBA interest rate changes during 2018.

2019
June 2019: -0.25% to 1.25%; July 2019: -0.25% to 1%; October 2019: -0.25% to 0.75%.

2020
March 4, 2020: -0.25% to 0.5% & March 20, 2020: -0.25% to 0.25%.

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About Roy Morgan

Roy Morgan is the largest independent Australian research company, with offices throughout Australia, as well as in Indonesia, the United States and the United Kingdom. A full service research organisation specialising in omnibus and syndicated data, Roy Morgan has over 70 years’ experience in collecting objective, independent information on consumers.

Margin of Error

The margin of error to be allowed for in any estimate depends mainly on the number of interviews on which it is based. Margin of error gives indications of the likely range within which estimates would be 95% likely to fall, expressed as the number of percentage points above or below the actual estimate. Allowance for design effects (such as stratification and weighting) should be made as appropriate.

Sample Size

Percentage Estimate

40%-60%

25% or 75%

10% or 90%

5% or 95%

1,000

±3.0

±2.7

±1.9

±1.3

5,000

±1.4

±1.2

±0.8

±0.6

7,500

±1.1

±1.0

±0.7

±0.5

10,000

±1.0

±0.9

±0.6

±0.4

20,000

±0.7

±0.6

±0.4

±0.3

50,000

±0.4

±0.4

±0.3

±0.2