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Inflation Expectations jump to 4.1% in July after RBA rate cuts

Source: Roy Morgan Single Source: Interviews an average of 4,000 Australians per month aged 14+ (Apr. 2010 – July 2019).

In July, Australians expected annual inflation of 4.1% over the next two years after the RBA cut interest rates to 1% in July. This is up 0.3% on June but down 0.2% on a year ago in July 2018.

Inflation Expectations have increased in July following back-to-back interest rate cuts in June and July but are still down on a year ago. Amongst Australia’s generations Inflation Expectations have fallen most significantly for both Baby Boomers and also Millennials. See below for a full analysis of these results in more detail.

Inflation Expectations increased in July after the RBA followed up its June interest rate cut with a second consecutive cut to leave Australian interest rates at a record low of only 1%. Inflation Expectations in July are based on personally interviewing a nationwide representative sample of 5,031 Australians aged 14+ face-to -face in their own homes.

Roy Morgan Inflation Expectations Index – Expected Annual Inflation in next 2 years

Source: Roy Morgan Single Source: Interviews an average of 4,000 Australians per month aged 14+ (Apr. 2010 – July 2019).

Inflation Expectations increase in July for L-NP, ALP and Greens supporters

Inflation Expectations for Australians increased in July and analysing these results by Federal voting intention shows increased Inflation Expectations for supporters of all three leading parties. However, Inflation Expectations for electors as a whole are now below those of the general population at 3.9%.

Despite the increase, L-NP supporters have clearly the lowest Inflation Expectations of any supporter group at only 3.5% in July, up 0.2% from a month ago, while those for ALP supporters were up by 0.2% to 3.9%.

The Inflation Expectations of Greens supporters were also up by 0.2% to 3.8% in July although were down significantly for supporters of Independents/Others which fell for the second straight month by 0.8% to 4%.

Inflation Expectations are above the national average in Victoria, Queensland and WA

Analysis of Inflation Expectations by State shows increases in most States in July with the exceptions of New South Wales and Tasmania. Inflation Expectations in New South Wales were unchanged at 3.8% while in Tasmania they were down by 1.4% to 3.4% and are now the lowest of any State.

In contrast Inflation Expectations increased in all other States and are now highest in the two mining States of Western Australia, up 0.6% to 4.4%, and Queensland, up by 0.4% to 4.3%.

Inflation Expectations in Victoria were up by 0.4% to 4.2%, and are also above the national average, while they increased by 0.1% to 3.8% in South Australia.

Inflation Expectations by State: June 2019 cf. July 2019

Source: Roy Morgan Single Source: June 2019, n=3,984 and July 2019, n=5,031. Base: Australians 14+.

Inflation Expectations highest for Generation X (1960-75) and Generation Z (1991-2005)

Analysing Inflation Expectations in Australia shows declines across most generations from a year ago following the national figure which declined 0.2% to 4.1%.

Inflation Expectations also fell by 0.2% for Pre-Boomers to 4% and for Baby Boomers by 0.3% to 3.6%. Baby Boomers now have the lowest Inflation Expectations of any generation and are the generation most impacted by the softening in house prices across Australia, and particularly in Sydney and Melbourne, over the last year.

In contrast the Inflation Expectations of Generation X are up by 0.2% to 4.3% compared to a year ago and are now equal highest alongside Generation Z which was barely changed down 0.1% to 4.3%.

Millennials, the generation now aged 27-43 years old and constituting the bulk of first home buyers, are set to be the biggest beneficiaries of the declining house prices over the last year and for this group Inflation Expectations have experienced the biggest fall, down by 0.5% to 3.8%.

Inflation Expectations by Generations July 2018 cf. July 2019

Source: Roy Morgan Single Source: July 2018, n=5,288 and July 2019, n=5,031. Base: Australians 14+.

Michele Levine, CEO, Roy Morgan, says Inflation Expectations rebounded to 4.1% in July following consecutive interest rate cuts by the RBA to a record low 1%:

“Roy Morgan Inflation Expectations rebounded by 0.3% to 4.1% in July following the RBA’s decision to cut Australian interest rates by 25 basis points in both June and July to a record low of 1%. This is the first time the RBA has cut interest rates in consecutive months for over seven years since June 2012.

“Despite the monthly increase Inflation Expectations are still down 0.2% from a year ago and remain well below the long-term average of 4.9% since April 2010.

“Analysing Inflation Expectations by generation shows the declines are broad-based and the biggest falls are for Millennials, down 0.5% to 3.8%, and Baby Boomers, down 0.3% to 3.6%.

“These two generations are at ‘opposite’ ends of the property ladder with Boomers now aged 58-73 years old comprising a large part of Australia’s property owners whereas Millennials aged between 28-43 years old constitute the bulk of those Australians looking to buy their first house.

“Clearly the decline in the property market over the last 12-18 months is playing a part in the lowering Inflation Expectations of these two generations in particular as Baby Boomers watch their wealth decline slightly from recent highs and Millennials eye an opportunity to jump on the property ladder in the months and years ahead.”

This in-depth face-to-face research on Australian inflation expectations was conducted during the month of July 2019 with an Australia-wide cross-section of 5,031 Australians aged 14+.

Monthly Roy Morgan Inflation Expectations Index (2010 – 2019)

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

4.0

Monthly
Average

4.9

4.8

4.9

4.9

4.9

4.9

4.9

4.9

4.9

4.9

4.9

4.8

4.9

Overall Roy Morgan Inflation Expectations Average: 4.9

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) If respondent says more than 5%.

“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.

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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