The Australian Bureau of Statistics (ABS) has released its March 2019 quarter inflation numbers.
This number is key as it can affect what interest rate the Reserve Bank of Australia (RBA) thinks it should be.
The ABS reported that total inflation was 0% between the December 2018 quarter to the March 2019 quarter. The total ‘seasonally adjusted’ inflation was also only 0.1%.
Over the past year inflation has been 1.3% to March 2019 compared to a rise of 1.8% in the 12 months to December 2018.
What caused the inflation to slow to 0%?
According to the ABS, the largest price rises during the quarter were vegetables which went up 7.7%, secondary education went up 4.2%, motor vehicles went up 2.4% and hospital services went up 1.3%. That news will probably sound good for food producers like Costa Group Holdings Ltd (ASX: CGC).
However, the biggest price falls were attributed to automotive fuel which was down 8.7%, domestic holiday travel & accommodation was down 3.8% and international holiday travel & accommodation was down 2.1%. This might not be good news for a business like Flight Centre Travel Group Ltd (ASX: FLT).
This news could mean a rate cut is more likely from the RBA to try to turn things around, which would punish savers even more.
Foreign exchange rate movements suggest that people believe a rate cut is much more likely as well, with the Australian dollar reducing in value by close to half a cent compared to the US dollar.
A healthy inflation rate of around 2% or more is widely accepted as a preferred scenario compared to a flat inflation rate.
With inflation tracking so low I am quite wary of owning businesses that largely rely on inflation alone to grow its profit. I would much rather own shares of businesses that can implement price rises and/or grow profit irrespective of inflation. I would rather own shares of businesses like the ones in the free
report below.
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Disclosure: Jaz owns shares of Costa Group Holdings Ltd at the time of writing, although this could change at any time.
