Consumer inflation, the measure of how quickly the shops are getting more expensive has finally come within the Reserve Bank's target range of 3 to 6 percent. This is the outcome of the inflation targeting via interest rates strategy that the Reserve Bank has been mandated to pursue for some time now. This is good news for consumers for while things are still getting more expensive, it is happening less quickly that a year ago. New statistics, however, show that inflation at the factory gate, is in fact, deflating. So what does this mean?
- Producer Price Inflation now at -3.3%
- Consumer Price Inflation dragging behind at 5.9%
- Savings are not being passed onto consumers
The recession, which is now officially over, put strain on producers. Inventory levels were run down and factories were not producing as much as before the recession. This, in part, explains the PPI deflation figures. It is not often that things get cheaper to make, but this is the case at the moment. These savings are not being passed onto the consumer as the headline consumer rate of inflation is still growing at 5.9%, even if that is now within the Reserve Bank's target range. The festive season is coming and it looks like the shops will be profit taking, further straining consumers.
Retailers had a hard time of it, like everyone, during the recession. Consumers are still cash strapped and needing to manage their debts rather than go on a spending spree this festive season. It looks like it might be a slow shopping month this December when the economy still needs all the help that it can get. If retailers passed the savings caused by PPI deflation then the outlook may be a bit brighter. So don't go crazy over the holiday season, plan your budget and stick to it, and pay those debts off rather than racking up more in presents, holidays and treats. Not much fun, but the economy is still shaky.