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Inflation Expectations rebound to 4.1% in May as L-NP re-elected

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

In May, Australians expected inflation of 4.1% per year over the next two years – a significant rebound from the record low of only 3.7% in April. This is up 0.4% on April and down 0.2% on a year ago in May 2018.

Despite the increase in May, Inflation Expectations have decreased around Australia compared to a year ago although the decline has been concentrated in Capital Cities with Inflation Expectations in Country Areas unchanged on a year ago. See below for a full analysis of these results in more detail.

Inflation Expectations rebounded strongly in May as the political uncertainty which had lingered over the first half of this year cleared as Australians elected the L-NP Government to a third term. Inflation Expectations are based on personally interviewing a nationwide sample of 4,011 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 – May 2019).

Inflation Expectations increase in May led by ALP and Independents/Others supporters

Inflation Expectations for Australians increased in May and analysing by Federal voting intention shows the move higher was driven by ALP supporters and supporters of Independents/Others who now have clearly the highest Inflation Expectations of 5.1%, up 0.7% on a month ago.

The Inflation Expectations of ALP supporters increased 0.2% to 4% and are now significantly higher than for their major party counterparts with those of L-NP supporters unchanged at 3.4%.

Inflation Expectations for Greens supporters declined slightly by 0.2% in May and at 3.6% are still significantly lower than the Australian average of 4.1%.

Inflation Expectations significantly higher in Country Areas than Capital Cities

Analysis of Inflation Expectations by compared to a year ago shows that despite the month-on-month increase in May Inflation Expectations for Australia have declined by 0.2% from a year ago.

Analysis by Regions reveals that the decline has been concentrated in Capital Cities which now have Inflation Expectations of only 3.9%, down 0.3% on a year ago while the measure is significantly higher and unchanged from a year ago at 4.6% in Country Areas. Inflation Expectations in rural and regional Australia have now been consistently higher than in Australia’s Capital Cities for two years since June 2017.

Analysis by State shows Inflation Expectations decreasing in most States in May compared to a year ago with the biggest decline in Tasmania, down by 0.9% to 3.7% and now the lowest in Australia.

Inflation Expectations in Western Australia and South Australia declined slightly from a year ago by 0.1% to 3.9%, while Inflation Expectations are also down by 0.1% to 4% in New South Wales and down by 0.6% to 4% in Victoria.

In contrast to other States there was no change to Inflation Expectations in Queensland compared to a year ago which are again the highest in Australia at 4.6%.

Inflation Expectations by States and Regions: May 2018 cf. May 2019

Source: Roy Morgan Single Source: May 2018, n=4,012 and May 2019, n=4,011. Base: Australians 14+.

Michele Levine, CEO, Roy Morgan, says Inflation Expectations have rebounded from a record low in April to increase 0.4% to 4.1% in May as Australians elected an L-NP Government to a third term against widespread public expectations:

“Roy Morgan Inflation Expectations rebounded from a record low of only 3.7% in April and increased by 0.4% to 4.1% in May as Australians re-elected Scott Morrison and the L-NP Government for another three years.

“However, despite the monthly increase, Inflation Expectations are still 0.2% lower than a year ago in May 2018. Inflation Expectations have now been lower on a year-over-year basis since October 2018 although the increase in May was the largest for nearly six years since July 2013.

“The drop in Inflation Expectations compared to a year ago has been broad-based around Australia’s States with drops in five out of Australia’s six States, although Inflation Expectations are unchanged at 4.6% in Queensland – now the highest of all States.

“Although widespread, Inflation Expectations have been hit the hardest in Australia’s Capital Cities, down by 0.3% to only 3.9% compared to a year ago. In contrast there has been little change in Country Areas with Inflation Expectations unchanged on a year ago at 4.6%.

“Higher Inflation Expectations in rural and regional Australia have been a consistent trend in recent years with Inflation Expectations in Australia’s two largest cities hit by substantial house price declines since mid-2017. The last time Australia’s Capital Cities had higher Inflation Expectations was two years ago in June 2017.

“The rebound in Inflation Expectations in May came throughout the month as many ‘pundits’ early in May had predicted the election of an ALP Government with the prospect of increased spending driving inflation higher. However, the L-NP’s unexpected victory in mid-May has now ended the political uncertainty which had impacted economic confidence over the last year leading into key elections in Victoria (November 2018), NSW (March 2019) as well as the recent Federal Election, has finally lifted with all three Governments re-elected to another term.

“Looking forward, the L-NP Government’s commitment to legislate substantial income tax cuts, as well as the RBA’s interest rate cut to a record low 1.25% with further interest rate cuts expected, should provide substantial support to the economy and lead to an increase in Inflation Expectations over the remainder of 2019.”

This in-depth face-to-face research on Australian inflation expectations was conducted during the month of May 2019 with an Australia-wide cross-section of 4,011 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

4.0

Monthly
Average

4.9

4.8

4.9

4.9

4.9

5.0

5.0

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.

For comments or more information please contact:
Roy Morgan - Enquiries
Office: +61 (03) 9224 5309
askroymorgan@roymorgan.com


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%

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