Finance Finance News Free childcare leads record-breaking consumer price falls

Free childcare leads record-breaking consumer price falls

Free childcare drove down June quarter CPI.
Free childcare led a record fall in consumer prices, but prices for household goods have actually increased. Photo: The New Daily
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The prices of everyday goods and services fell by 1.9 per cent in the three months to June, marking the largest drop ever recorded by the ABS.

But those reductions were driven by now-defunct fiscal stimulus measures, which hid slight increases in the cost of many household goods.

The 1.9 per cent drop in the Consumer Price Index (CPI) – the largest fall in the CPI’s 72-year history – dragged down the annual inflation rate (for the year ending June) to minus 0.3 per cent.

“Since 1949, this was only the third time annual inflation has been negative,” ABS chief economist Bruce Hockman said.

“The previous times were in 1962 and 1997-98.”

But these falls were primarily the result of federal government’s free childcare policy, Mr Hockman added.

That policy – which ran from April 5 until July 12 – saw the average Australian pay 95 per cent less on childcare during the June quarter.

Meanwhile, state governments in New South Wales, Victoria, and Queensland also offered free pre-school to families as part of their coronavirus support packages.

That helped reduce the cost of pre-school and primary education by 16.2 per cent, while petrol costs also fell 19.3 per cent during those three months.

These three factors helped drag down the CPI despite notable increases in other commonly-purchased goods.

“Excluding these three components, the CPI would have risen 0.1 per cent in the June quarter,” Mr Hockman said.

Household goods see prices climb

The 72-year record falls actually concealed increases in the prices Australians pay for household goods.

Toilet paper – which became a hot commodity among virus panic buyers – lifted 4.5 per cent, while cleaning products surged up by 6.2 per cent.

BIS Oxford Economics chief economist Sarah Hunter said “retailers have been able to take advantage of the shift in consumer spending” away from services to goods.

That shift was driven by coronavirus restrictions limiting what customers could actually spend on services.

Instead that money was directed towards non-perishables, new furniture and other household goods, which enabled retailers to “increase prices and/or reduce discounts.”

And while the removal of free childcare will see inflation “bounce back” in the current September quarter, Dr Hunter said the removal of government support payments will lead to weak demand from shoppers.

“Retailers may have to return to discounting (or at least limited price rises) as government support for households is tapered and the full impact of the fall in employment and output is felt,” she said.