<section data-scroll-anchor="false" data-testid="conversation-turn-48" data-turn="assistant" data-turn-id="request-WEB:55d7c6ac-8e6d-4881-ad49-0ed9bf66d1cc-23" dir="auto">
Melbourne’s apartment market entered 2026 with renewed momentum, but the recovery is uneven, policy-driven, and increasingly shaped by constrained supply.

According to the RPM Apartments &amp; Townhomes Market Report (April 2026), apartments have begun to outperform detached housing on key metrics,yet that performance is occurring against a backdrop of falling approvals and a tightening development pipeline.

At the end of 2025, Melbourne unit values reached a three-year high of $656,500, recording quarterly growth of two per cent. That figure edged ahead of the 1.8 per cent growth recorded in the house market over the same period, marking a notable shift in relative performance. While modest in absolute terms, the outperformance is significant given the sustained dominance of houses through much of the previous cycle.

This shift has been driven in large part by policy. The federal government’s expanded five per cent Deposit Scheme has had a disproportionate impact on apartment demand, particularly in Melbourne where the $950,000 price cap captures a large share of medium- and high-density stock.

As RPM notes, the scheme “heavily favours medium and high-density dwellings,” effectively accelerating demand in the apartment sector.

The impact is most visible in buyer activity. Victoria recorded more than 43,000 new housing loans in Q4 2025, the highest quarterly volume since mid-2022 and one of the strongest results in over a decade. This lift was broad-based across all buyer types, with first home buyers, owner-occupiers and investors all returning to the market with greater confidence.

This surge in demand has flowed directly into apartment pricing, particularly in Melbourne’s middle and outer rings. Middle-ring unit values reached approximately $757,500, a four-year high, while outer-ring units climbed to a record $650,000. Quarterly growth of 2.9 per cent and 2.5 per cent respectively significantly outpaced both the inner ring (0.8 per cent) and the broader house market.

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<img alt="RPM" data-entity-type="file" data-entity-uuid="4628dde5-ad63-4b03-b18e-77d0f750e2aa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.23.32%E2%80%AFAM.png?VersionId=ig6mqc7Oz7UaszRuzULrGtLPUxGf4NJC" />

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The divergence between apartments and houses is also being shaped by affordability. Detached housing remains out of reach for many buyers, pushing demand toward apartments as a more accessible entry point into well-located suburbs. This is particularly evident among first home buyers and downsizers, both of whom are increasingly prioritising location, amenity and lifestyle over land size.

At the same time, population growth continues to underpin demand. Victoria added more than 122,000 residents in the year to Q3 2025, with Melbourne attracting both overseas migrants and interstate movers, partly due to its relative affordability compared to other capitals.

&nbsp;

<img alt="Population" data-entity-type="file" data-entity-uuid="49e10567-a8b3-47c3-afbd-290f0bb62c49" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.22.25%E2%80%AFAM.png?VersionId=.2Drmko4TPh02X55JdF3mIC1EcG0ZfGl" />

However, the most critical factor shaping the apartment market is not demand, it is supply.

Apartment approvals across Greater Melbourne have fallen sharply, signalling a constrained pipeline of future stock. In Q4 2025, just 2,339 apartments were approved, down 20 per cent on the previous quarter and 47 per cent lower than the same period a year earlier. On an annual basis, 11,066 apartment approvals were recorded, an improvement on the previous year, but still well below medium- and long-term averages.

&nbsp;

<img alt="Apartment approvals" data-entity-type="file" data-entity-uuid="12f2e7bc-fe01-40c0-80b5-9e829b279d98" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.21.56%E2%80%AFAM.png?VersionId=5mnIXkXGoDgIJdAFhA0alm0cSKzEytqZ" />

This decline reflects a broader contraction cycle that has been underway since 2020. As RPM notes, “apartment approvals appear to be sliding back into a downward trend,” with developers increasingly focused on launching and completing existing projects rather than initiating new ones.

The reasons are well understood. Construction costs have risen more than 20 per cent since 2021, driven largely by labour shortages and material price escalation. At the same time, financing conditions have tightened, with lenders requiring higher contingencies and taking a more cautious approach to risk. Combined with recent interest rate rises, these factors have made feasibility more challenging, particularly for higher-density projects.

This dynamic is creating a disconnect in the market. Demand for apartments—particularly at the more affordable end—is strengthening, while the pipeline of new supply is weakening. In the short term, this may limit the number of new projects coming to market. Over the medium term, however, it is likely to support price resilience and potentially further outperformance relative to houses.

There are some signs of policy-driven supply response. The introduction of Victoria’s Mid-Rise Code, which streamlines approvals for four- to six-storey developments, is expected to improve delivery in well-serviced middle-ring locations. However, this is unlikely to materially offset the broader decline in apartment approvals in the near term.

Despite the positive momentum at the end of 2025, the outlook for 2026 has become more complex. Two interest rate rises early in the year have already impacted consumer confidence, while broader cost pressures, particularly energy and fuel, are feeding through to construction and development costs.

“Victoria’s built form market ended 2025 on a high, but early 2026 rate rises quickly reversed the momentum,” RPM notes.

The implication is that while apartments are currently outperforming houses, the trajectory of that outperformance will depend on how these competing forces evolve. Policy support and affordability are clearly working in favour of apartments, but constrained supply and rising costs are likely to shape the pace and nature of future growth.

What is increasingly clear is that apartments are playing a more central role in Melbourne’s housing market. As population growth continues and affordability pressures intensify, higher-density housing is becoming not just an alternative to detached homes, but a primary solution to the city’s housing needs.
</section>

Joel Robinson

Units lead Melbourne price growth as apartments outperform houses: RPM

Brunswick is set for some of its largest apartments ever delivered with the upcoming new development Frith &amp; Howarth, where the apartments are around 20 per cent larger than what has come before it in the sought-after suburb.

Developer Young Group focused its design on Frith &amp; Howarth around size and scale, but within a boutique building, to create a mini neighbourhood within the mid-rise development. There are just 24 apartments in the mid-rise building on Victoria Street, a short walk to Brunswick Station and the cafe and dining strip along Sydney Road.

“We spent hours comparing what’s currently on the market so we could offer genuine points of difference,” Young Group says, pointing to room sizing, storage, and functional planning as key drivers behind the design.

All of the two-bedroom apartments in the building have been snapped up, with just the large three- and four-bedroom apartments, with the biggest floorplans and best outlooks, remaining.

[smartcode_project:default project_id=134317 project_image_fid=354139]

Apartments open directly into open-plan living zones where full-height glazing draws light deep into the apartment. Sliding doors extend the space outward to terraces, many oriented toward the adjacent park or back toward the city skyline.

Kitchens sit within this central space, anchored by sculptural island benches that reference the building’s faceted exterior language. Storage is integrated across multiple layers, overhead cabinetry, concealed joinery, and, in larger configurations, dedicated sculleries or butler’s pantries.

[smartcode_project:default project_id=134317 project_image_fid=354137]

The penthouse is the largest ever offered in Brunswick. The penthouse measures nearly 400 sqm all-up, with 242 sqm of internal space complimented by a further 149 sqm of terraces.

It spans the whole top floor and has four bedrooms, four bathrooms, and parking for four cars.

[smartcode_project:default project_id=134317 project_image_fid=354133]

Low maintenance resident amenity has been created in the form of a landscaped rooftop, complete with&nbsp;vegetable plots, outdoor cooking areas, and aflresco dining spaces, designed as a place for neighbours to gather outside of their homes.

“To enable connection with neighbours, generous rooftop gardens with communal spaces and outdoor cooking areas offer a chance to develop a sense of community,” says John Patrick, Principal of <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick Landscape Architects</a>.&nbsp;

“Private open spaces with a selection of native and exotic plantings and gorgeous city views on the rooftop create a high-end aesthetic, with a low maintenance lifestyle. The perfect balance, so that residents can enjoy a serene living space.”

[smartcode_project:default project_id=134317 project_image_fid=354134]

Sustainability is embedded at both the building and apartment level. <a href="https://www.apartments.com.au/new-apartments/frith-howarth-288-290-victoria-street-brunswick-vic-3056">Frith &amp; Howarth</a> is one of only a small number of all-electric residential developments in Brunswick, supported by solar infrastructure, EV-ready parking, and high-performance glazing. These measures sit alongside less visible systems such as rainwater reuse and high-grade insulation, reducing long-term operational costs while maintaining consistent internal conditions.

Positioned within walking distance of Brunswick Station, Route 96 trams, and established retail along Sydney Road and Barkly Square, the development balances access to transport with proximity to open space, a combination that has become increasingly difficult to secure in inner-city sites.

“These exquisite homes are nestled in a culturally diverse neighbourhood, with parklands and nature right on your doorstep,” says Young Group.

[smartcode_project_cta:default project_id=134317]

Frith & Howarth to deliver Brunswick’s largest apartments

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> in Brunswick is entering its final stages of construction, with the removal of the project’s last tower crane and the unveiling of the building’s full façade marking a significant milestone ahead of completion this coming spring.

The Park Street development, designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>&nbsp;and Mirvac Design with landscaping by <a href="https://www.apartments.com.au/landscape-architect/jack-merlo">Jack Merlo</a>, is now largely structurally complete, with internal works progressing across the 169-apartment project opposite Princes Park.

<a href="https://www.apartments.com.au/builders/mirvac-construction">Mirvac Construction</a> Project Manager Sam Payne said the latest update reflects a transition from structure to refinement.

“Since our last update, all façade panels have been installed and the scaffolding and gantry has come down, unveiling the building in its full form for the very first time,” Payne said.

“A significant milestone was reached this month with the removal of our final tower crane, signalling the completion of major structural works and a pivotal step forward in the building’s transformation.”

[smartcode_project:default project_id=4802 project_image_fid=366856]

Apartments are now well advanced internally, with joinery completed to level eight and tiling to level six, alongside the delivery of a prototype apartment used to set the benchmark for the remaining residences.

This next phase coincides with the release of a completed furnished residence, styled by MCM House, and the introduction of private buyer tours, giving purchasers a clearer understanding of the finished product ahead of settlement.

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> will comprise 169 one to four-bedroom apartments, with completion targeted for early spring. Interiors focus on natural materials and muted tones with two design schemes, while kitchens and bathrooms adopt a restrained palette anchored by stone, timber and textured finishes.

Bates Smart Director Jeffery Copolov said the project reflects a shared design direction centred on liveability and sustainability.

“Blending Mirvac and Bates Smart’s focus on wellness and sustainability, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> offers a new kind of conscious, elevated living in Melbourne’s inner north,” Copolov said.

<a href="https://www.urban.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> presents Mirvac's third parkside collaboration with&nbsp;<a href="https://www.urban.com.au/architects/bates-smart">Bates Smart</a>&nbsp;in Victoria.&nbsp;Their previous collaborations delivered two of the city’s landmark apartment buildings: The Melburnian opposite Kings Domain and The Eastbourne on Fitzroy Gardens.

[smartcode_project:default project_id=4802 project_image_fid=366857]

A key focus of the development is its landscape-led amenity offering. The central courtyard, spanning around 600 sqm, will feature established trees and planting grown off-site, alongside communal lawns and seating areas designed for everyday use.

Development Manager James Gardner said the outdoor spaces are central to the project’s lifestyle positioning.

“<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> isn’t just a home, it’s a complete lifestyle offering, and the resident amenity is just one example of the elevated living experience the soon-to-be-complete building will be known for,” Gardner said.

The courtyard connects to a series of shared indoor and outdoor spaces, including a residents’ lounge, dining room, library and secondary west-facing garden area, designed as extensions of the apartments themselves.

Located directly opposite Princes Park and around four kilometres from the CBD, the development places residents within one of Melbourne’s most established inner-north precincts, with access to open space, transport and the retail and hospitality offerings of Brunswick and Carlton.

With façade works complete and landscaping and final finishes now underway, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> is moving into its most active construction phase, with permanent services and external works to be finalised in the coming months ahead of completion in spring.

[smartcode_project_cta:default project_id=4802]

Mirvac’s latest landmark, Prince & Parade Brunswick, enters final construction phase

Boutique Perth developer ADC has unveiled its latest project.

The developer, which focuses on bringing apartments to some of Perth's most premium inner-city and riverside suburbs, has launched <a href="https://www.apartments.com.au/new-apartments/mos-lane-mosman-park-46-manning-street-mosman-park-wa-6012">Mos Lane</a>, 68 luxury apartments and townhouses in the heart of <a href="https://www.apartments.com.au/developments/mosman-park-wa-6012">Mosman Park</a>.

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Alongside the one-, two-, three- and four-bedroom apartments, the development will also include five two-level townhomes and two luxe penthouses. ADC is also introducing a significant retail offering for residents through Mos Lane Village, which will feature a wellness studio, fish and chips shop, barber, and florist, adding a layer of amenity not typically found in the predominantly residential Mosman Park area.

Construction has already commenced on the project, which sits just a short walk from the Swan River, Mosman Park Bowls Club, and Mosman Park Golf Course.

House Agency Directors Tom House and Lachlan McDonald say they are fielding the majority of buyer interest from local downsizers, as well as buyers with a long-standing affinity for Mosman Park.
</section>

[smartcode_project:default project_id=148957 project_image_fid=364591]

Mos Lane will comprise two buildings; Samson House and Manning House, which have been designed by&nbsp;<a href="https://www.apartments.com.au/architects/nelson-koo">Nelson + Koo</a>, an emerging design consultancy specialising in the masterplanning and design of mixed use places and spaces.

The two buildings adopt distinct architectural responses to their surroundings. Manning House references the strong roof forms of nearby homes, with floorplates oriented to maximise light and long-range views, while Samson House is organised around a central atrium designed to bring daylight deep into the building and create a greater sense of openness.

At ground level, the inclusion of five townhomes introduces a typology more commonly associated with Mosman Park’s established streets, each with private courtyards and direct frontage, offering a transition between traditional housing and apartment living.

[smartcode_project:default project_id=148957 project_image_fid=364103]

Interiors have been led by Melbourne-based Hecker Guthrie, with an emphasis on practical, long-term liveability. Residences incorporate sculpted joinery, generous storage and flexible multi-purpose rooms that can adapt to changing household needs, whether for working from home, guest accommodation or additional living space.

Material selections draw on a restrained palette of textured stone, timber and neutral tones, with options for lighter or darker schemes. Detailing such as fluted glass, full-height joinery and integrated appliances is intended to balance functionality with a more refined residential finish.

Outdoor spaces are a consistent feature across the development, with balconies and terraces designed for dining and entertaining, and larger apartments incorporating outdoor kitchens. Orientation has been considered to allow residents to choose between morning or afternoon sun, while mature street trees and landscaped communal areas contribute to a softer streetscape.

[smartcode_project:default project_id=148957 project_image_fid=364107]

Shared amenities are positioned to support both day-to-day convenience and occasional use. These include a private dining room with a caterer’s kitchen, alfresco entertaining areas, and a bookable guest suite for visiting friends and family. Additional practical features such as a resident workshop, storage facilities, car and pet wash areas, and concierge-style services for cleaning and dry-cleaning collection reflect a focus on usability.

Positioned between the Swan River and Cottesloe Beach, and within reach of schools such as Iona Presentation College and St Hilda’s Anglican School, the development is aimed at a broad buyer group, from downsizers seeking a lower-maintenance alternative to larger homes, through to local residents looking to remain in the area in a different housing format.

Mos Lane represents one of the more significant additions to Mosman Park’s limited pipeline, combining new housing supply with a village-style retail centre in a suburb where opportunities for large-scale redevelopment are relatively constrained.

[smartcode_project_cta:default project_id=148957]

Living village precinct set for Mosman Park as ADC launches Mos Lane

An entity linked to I&amp;D Group Founder Ivan Filipović has filed plans for a new residential development at 188–202 Swan Street in Cremorne, targeting a prominent site within the tightly held Swan Street activity corridor.

The proposal seeks to redevelop the consolidated Swan Street landholding into a <a href="https://www.apartments.com.au/new-apartments/188-202-swan-street-cremorne-vic-3121">high-density mixed-use project</a>, replacing a series of existing commercial buildings with a significantly scaled residential outcome. The planning submission positions the development as a response to increasing demand for housing in well-connected inner-urban locations, particularly within established activity centres.

Plans outline the construction of a 14-storey building delivering 165 apartments above a four-level basement, alongside a ground-floor retail and commercial offering designed to activate the streetscape. A key feature of the scheme is a new north–south pedestrian link connecting Swan Street to Railway Place, intended to “enhance permeability and provide an active, publicly accessible connection through the site.”

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="7332a8f8-dd2b-483d-b86e-320658838c84" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne.png?VersionId=cXm8vAaRdHh.LpYVbecrRkjckgu9mtAF" />

The development will retain part of the existing built form at 198–200 Swan Street, while the remainder of the site will be cleared to accommodate the new structure. Basement levels will provide 196 car spaces and 113 bicycle spaces, with vehicle access from Railway Place. Communal amenity is distributed across the building, including a shared outdoor area on Level 1 and a rooftop terrace for residents.

Ground level uses include retail tenancies fronting Swan Street and the pedestrian link, a residential lobby, and a flexible commercial space positioned to support community-oriented uses. The planning report notes this space “could be offered as a flexible space within the development for community groups,” supporting short-term or longer-term occupancy arrangements.

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="8208bf7b-cc67-485d-ad0f-1d73a74c907f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne%20lane.png?VersionId=69ctjC0txXv0zCHy7qQUpJyGwvPAT7gw" />

The site sits within the Swan Street Major Activity Centre, surrounded by a mix of retail, hospitality, and emerging residential development, and directly opposite tram services along Swan Street. East Richmond Station is located to the south, providing strong rail connectivity, while the broader Cremorne precinct continues to evolve as a mixed-use hub.

I&amp;D Group, founded by Ivan Filipović, is regarded as one of Victoria’s largest formwork contractors, partnering with major construction firms across large-scale public and private developments. The Swan Street proposal signals a move into development-backed opportunities tied to strategic inner-city sites.

First Look: Plans lodged for Cremorne apartment project on Swan Street

Consumer Finance

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EXPERT OBSERVER
The last time consumer prices fell by 1.9 per cent over a quarter – that is, over a three month period – was in 1931.
Back then it was the ‘C series index’ rather than the ‘consumer price index’. Just like today, those times – back in the late 1920s and early 1930s – were remarkable, being the time of a global depression. But fortunately policymakers today have responded differently to back then, applying significant fiscal and monetary stimulus to limit the length and severity of the economic downturn.
So prices are tipped to rebound in the current quarter. The last thing anyone wants to see is deflation – a sustained period of falling prices – because that could see the current economic downturn being extended.
Prices fell sharply in the June quarter for a number of reasons – principally, low rents, subsidised child care, free preschool and lower petrol prices. The best guide to underlying prices is the ‘trimmed mean’. This measure shows prices down 0.1 per cent in the quarter to be up 1.2 per cent over the year. So low annual inflation, not deflation.
In the current quarter – the September quarter – consumer prices are expected to lift from the lows. The headline rate of inflation is tipped to lift 1.4 per cent, pushing the annual growth rate up to 0.4 per cent. The annual trimmed mean is expected near 1.4 per cent.
While deflation is not expected to take hold, there is no room for complacency. Consumers should be given every encouragement to keep spending. If consumers start holding off on purchases on the hope of cheaper prices, then we will have a problem – a problem that would require more fiscal and monetary stimulus being applied.
The Reserve Bank has a long-run series on inflation back to 1922. Data can be found here:
<a href="https://www.rba.gov.au/inflation/measures-cpi" target="_blank">https://www.rba.gov.au/inflation/measures-cpi.html</a>
What do the figures show?
Overall result: The Consumer Price Index – the main measure of inflation in Australia – fell by 1.9 per cent in the June quarter (consensus: -2.0 per cent). It was the biggest ever quarterly fall for the CPI (since 1948). The last time consumer prices fell as much (C series index) was in September quarter 1931. In seasonally adjusted terms the CPI fell by 2.0 per cent in the June quarter. The annual rate of headline eased from a 5½-year high of 2.2 per cent to -0.3 per cent – the lowest result since September quarter 1997.
Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean fell by 0.1 per cent in the June quarter (1.2 per cent annual); the weighted median rose by 0.1 per cent (1.3 per cent annual) and the CPI less volatile items fell by 1.3 per cent (0.4 per cent annual). Overall, underlying inflation was flat in the quarter and rose by around 1.25 per cent over the year. Market goods and services less volatile items rose by 0.3 per cent in the quarter to be up 2.0 per cent on the year.
Capital cities: Sydney -2.3 per cent in the quarter (annual -1.0 per cent); Melbourne -0.8 per cent (+0.3 per cent); Brisbane -2.2 per cent (-1.0 per cent); Adelaide -1.0 per cent (+0.8 per cent); Perth -1.2 per cent (+0.1 per cent); Hobart -1.4 per cent (+1.3 per cent); Darwin -2.5 per cent (-1.8 per cent); Canberra -2.3 per cent (-0.6 per cent).
Main Negative Contributors:
The most significant price falls in the June quarter were child care (-95.0 per cent), automotive fuel (-19.3 per cent), preschool and primary education (-16.2 per cent) and rents (-1.3 per cent).
Child care: The ABS reported, “A fall of 95.0 per cent in child care was the main contributor due to free child care during the quarter. Excluding the impact of child care, this group would have risen 2.3 per cent.”
Housing: The ABS said, “Rents recorded the first quarterly fall since the series commenced in 1972. Weak rental market conditions as a result of COVID-19 lockdown restrictions and rising vacancy rates saw rents fall in most capital cities in the June quarter.”
The 2.5 per cent “fall in electricity was mainly driven by utility rebates in some capital cities to support households from the impacts of COVID-19.”
Automotive fuel: The ABS said, the “19.3 per cent fall in automotive fuel (was) due to low global demand resulting from COVID-19 restrictions. Automotive fuel fell in April (-15.9 per cent), and rose in May (+0.9 per cent) and June (+9.2 per cent)”
Education: The ABS said, “A fall of 16.2 per cent in preschool and primary education was the main contributor driven by free before and after school care and free preschool for term 2 in NSW, Victoria and Queensland.”
Food: the ABS said, “Falls of 1.4 per cent in vegetables and 1.1 per cent in beef and veal partially offset the rise this quarter. Improved weather conditions saw a range of fresh produce return to typical seasonal prices, while mince meat saw temporary discounts.”
Main Positive Contributors:
The most significant offsetting price falls June quarter were tobacco (+2.7 per cent), other non-durable household products (+4.5 per cent) and furniture (+3.8 per cent).
Furnishings, household equipment and services: the ABS said, “Rises of 3.8 per cent in furniture and 3.0 per cent in major household appliances partially offset the fall, due to strong demand for products such as home office furniture and fridges and freezers.”
Rises of 4.5 per cent in other non-durable household products and 6.2 per cent in cleaning and maintenance products were seen due to a reduction in specials and genuine price increases for toilet paper and cleaning products.
Recreation and culture: the ABS said, “A rise of 1.8 per cent in Audio, visual and computing equipment was due to strong demand for products such as TVs. This was the first quarterly rise in this series since 2015.”
Health: the ABS said, “falls of 0.5 per cent in pharmaceutical products and 0.2 per cent in medical and hospital services were the main contributors. The fall in pharmaceutical products was due to increases in the proportion of consumers who qualify for subsidies under the Pharmaceutical Benefits Scheme (PBS). The fall in medical and hospital services was due to a combination of increased bulk billing as well as a freeze on private health insurance premiums, which typically rise on 1 April each year.”
Food: the ABS said, “Rises of 0.8 per cent in take-away and fast foods, 3.8 per cent in fish and other seafood, 2.0 per cent in water, soft drinks and juices, and 6.1 per cent in other cereal products, were the main contributors this quarter. High demand saw a reduction in specials and genuine price increases on a range of long-life products such as canned tuna and canned meat, rice and pasta.” 
Prices of tradables: The tradables component of the ‘All groups CPI’ fell by 1.3 per cent in the June quarter to be down 0.5 per cent over the year.
Tradable goods component fell 1.3 per cent mainly due to automotive fuel (-19.3 per cent).
Tradable services component fell 1.9 per cent due to international holiday travel and accommodation (-2.0 per cent).
Prices of non-tradables: The non-tradables component of the ‘All groups CPI’ fell by 2.3 per cent in the June quarter to be down 0.2 per cent over the year.
Non-tradable goods component rose 0.2 per cent, due to tobacco products (+2.7 per cent).
Non-tradable services component fell 3.6 per cent, due to child care (-95.0 per cent).
In seasonally adjusted terms, the tradables component of the ‘All groups CPI’ fell 1.3 per cent and the non-tradables component fell 2.2 per cent.
Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
What are the implications for interest rates and investors?
The Reserve Bank sets interest rates with a view of keeping inflation between 2-3 per cent over an economic cycle. Inflation is well below the lower bound of the range at present. And the expectation is that inflation will remain contained for some time. As a result, interest rates will spend an extended period at generational lows.
Super-low rates is a great result for borrowers. But it represents on-going challenges for savers. The added complication that listed companies are expected to slash dividends when they report over the next month.
Businesses that want an inflation guide for setting selling prices or rents are best advised to use the ‘trimmed mean’. The Reserve Bank expects annual trimmed inflation to be 1.25-1.50 per cent through to mid-2022.
Does it feel like deflation? Does it feel like the biggest quarterly fall in prices in 89 years? If you were outfitting your home office with furniture and computers, probably not. If you are renting, with children in child care, and paid electricity bills and health insurance premiums in the past quarter, then you probably noticed a big drop in outlays. Similarly if you drive a fair bit – petrol prices slumped in the quarter.
But apart from Victoria, expect more ‘normal’ growth of consumer prices in the months ahead. Petrol prices have certainly lifted and the period of free child care has come to an end.
The inflation measure ‘market goods and services, excluding volatile items’, rose 0.3 per cent in the quarter and 2 per cent over the year. This measure gives a better sense of ‘normal’.
CRAIG JAMES is the Chief Economist at CommSec
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cjames-5S2v74qSNK

CPI fell for the first time since 1931: CommSec's Craig James

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EXPERT OBSERVER
The Consumer Price Index – the main measure of inflation in Australia – rose by 0.6 per cent in the June quarter, above expectations.
In seasonally adjusted terms the CPI rose by 0.7 per cent. The annual rate of headline inflation lifted from 1.3 per cent to 1.6 per cent. The Aussie dollar rose by almost a quarter of a cent against the greenback in response.
The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the June quarter (1.6 per cent annual); the weighted median rose by 0.4 per cent (1.2 per cent annual) and the CPI less volatile items rose by 0.3 per cent (1.5 per cent annual). Overall, underlying inflation rose by around 0.4 per cent in the quarter and by around 1.5 per cent over the year. Market goods and services less volatile items rose by 0.5 per cent in the quarter to be up 1.6 per cent on the year.
Automotive fuel (+10.2 per cent), medical and hospital services (+2.6 per cent) and international holiday travel (+2.7%) recorded the most significant price gains. The most significant offsetting price falls this quarter are fruit (-4.1 per cent), electricity (-1.7 per cent) and domestic travel (-1.5 per cent).
<h1>What does it all mean?</h1>
- Inflation remains contained. But we can never claim that the inflation dragon is dead, rather resting. Higher fuel prices can be passed through in terms of higher taxi and public transport fares as well as freight and courier prices. Weather events like the current drought in eastern Australia can push up prices of supermarket goods as well as café, restaurant and takeaway food prices. The high activity in infrastructure building can put upward pressure on construction sector wages, in turn lifting prices of newly-built dwellings.   
- Clearly fuel and food prices are volatile. Fuel lifted 10.2 per cent in the June quarter, but over the past month, petrol is down by 3 per cent.
- If we are looking where future inflation pulses can come from, fuel prices, weather events, administered prices (such as utilities and child care), the exchange rate, construction and wages are the things to watch.
- Headline inflation has averaged 1.7 per cent over the past five years and averaged 2.1 per cent over the past decade. So clearly inflation remains below ‘normal’ levels and certainly still below the Reserve Bank’s 2-3 per cent target band.
- The key underlying measures of inflation rose 0.3-0.5 per cent in the June quarter. Even if the latest results were annualised, inflation would be below the Reserve Bank’s 2-3 per cent inflation target.
- Wages are still growing at a slower pace than in the past. But wages are outpacing prices and have lifted from lows. And businesses can’t absorb higher costs forever. The next wage price index data is released on August 14. 
- The Reserve Bank has cut rates in quick succession. At the same time there are indications that economic momentum has improved since the election. The US Federal Reserve is poised to cut rates. So it is opportune that the RBA stays on the interest rate sidelines for now. But with inflation below the target band and likely to remain low, the Reserve Bank can cut rates further if it believed it would be successful in generating faster economic growth, higher wages and lower unemployment. 
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CRAIG JAMES is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>. 
 
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Inflation dragon still dozing: CommSec

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Australia's Consumer Price Index has risen 0.6 percent over the June quarter, slightly higher than expectations. 
The biggest drivers in the uptick of prices was fuel, up 10 percent.
International holiday travel and accomodation was up 2.7 percent, medical and hospital services was up 2.6 percent and tobacco was up 2.4 percent.
On the flip side, prices for fruit and vegetables were down 2.8 percent), domestic holiday travel and accommodation was down 1.5 per cent and electricity was down -1.7 per cent over the quarter.
"Inflation remains contained," noted CommSec chief economist Craig James.
"But we can never claim that the inflation dragon is dead, rather resting. 
"Higher fuel prices can be passed through in terms of higher taxi and public transport fares as well as freight and courier prices. 
"Weather events like the current drought in eastern Australia can push up prices of supermarket goods as well as café, restaurant and takeaway food prices. 
"The high activity in infrastructure building can put upward pressure on construction sector wages, in turn lifting prices of newly-built dwellings,' James advised.   
ABS chief economist Bruce Hockman said automotive fuel price rise of 10.2 per cent in the June quarter 2019 contributed to half of the 0.6 per cent rise this quarter.
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"Automotive fuel prices returned to levels recorded in late 2018 after falling 8.7 per cent in the March quarter 2019." The CPI rose 1.6 per cent through the year to the June quarter 2019, after increasing 1.3 per cent through the year to the March quarter. 
"Annual growth in the CPI continues to be subdued due to falls in a number of administered prices. Through the year, utility prices have fallen 0.2 per cent and child care has fallen 7.9 per cent following the introduction of the Child Care Subsidy package in July 2018."
Westpac had been <a href="/expert-insights/investing/cpi-forecast-to-rise-for-june-quarter-westpacs-justin-smirk">forecasting a 0.5% rise</a> in the June quarter CPI, taking the annual pace to a 1.5% rise from 1.3%.
"The June quarter tends to be a seasonally soft quarter with the ABS projecting a seasonal factor of 0.2ppt increase," Westpac's Justin Smirk said.
IFM economist Alex Joiner says the figures were a slight upside surprise, however it is inline with expectations on core measures.
ANU professor Ben Phillips says CPI for child care shows that since 2002 prices after subsidies up 69% or 14% (real terms). About -6% relative to incomes.
Darwin saw the biggest increase in inflation, up 0.8 percent, driven by a 14 percent rise in domestic holiday, travel and accomodation prices.
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jrobinson-rf4aSBido9

CPI rises 0.6 percent in June quarter 

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EXPERT OBSERVER
The main measure of consumer prices in Australia – and a key guide to the cost of living for families – is the Consumer Price Index. In the March quarter the CPI was unchanged in original terms, the lowest result in three years. And the annual rate of inflation eased from 1.8 per cent to a 2½-year low of 1.3 per cent. 
While the cost of living has slowed markedly in the latest quarter, this is a trend that has been operating for quite some time. Over the last five years, annual inflation has averaged just 1.74 per cent – the lowest equivalent result since late in 1963. If 20-year averages are used, you would have to go back to 1952 to find a lower outcome. 
While wage growth has slowed over time, so has inflation – and to a greater extent. Aussie consumers have rarely had it better. 
But while the CPI provides a broad gauge of the cost of living, in practice living costs will vary across demographic groups and across regional areas. It all depends on the relative importance of the good or service in your household budget. Clearly younger people purchase markedly different items to those purchases by aged pensioners. 
The other important point is that living costs should be tracked in relation to incomes. For instance if wages are growing at a faster rate than prices, purchasing power will have increased, and, more broadly, the standard of living. Of course the standard of living is more subjective and may include things like traffic congestion and access to medical services. 
The other complication is the time period for measurement. The cost of living may have improved in recent times, but that may have occurred after a long period where living costs were soaring. 
The bottom line is that purchasing power has continued to improve for Australian consumers. For average wage earners, wage growth has exceeded growth of prices over the past five years and over the past decade. Quite remarkably the prices of 26 of the 87 expenditure class items tracked by the ABS are actually lower now than a decade ago. Only 16 of 87 expenditure class items have recorded faster price increases than wages over the past decade.
Living cost indexes 
The Consumer Price Index measures “price inflation for the household sector as a whole”. But to measure purchasing power for different groups in the economy, the Bureau of Statistics compiles living cost indexes. The March quarter figures were issued yesterday. The living cost index (LCI) changes were: employees (flat; +1.4 per cent annual); aged pensioners (up 0.3 per cent; +1.4 per cent annual); self-funded retirees (down 0.2 per cent; +1.6 per cent annual); ‘other government transfer recipient households’ (up 0.2 per cent; +1.6 per cent annual); pensioner and beneficiary households (up 0.3 per cent; +1.6 per cent annual). 
Over the past decade, arguably employee households have had more to celebrate than other groups. The LCI for employees lifted by only 19.3 per cent, followed by self-funded retirees (up 22.8 per cent); age pensioners (up 23.8 per cent), pensioner and beneficiary households (up 25.1 per cent) and ‘other government transfer recipient households’ (up 26.1 per cent).
Prices and incomes
Over the past five years the Consumer Price Index (CPI) rose by 8.3 per cent. And over the past decade, prices rose by 23.4 per cent. The main measure of wages is the wage price index. But data on the WPI is only available to December 2018. Still, the WPI has grown at a faster rate than prices over the past five and ten years. Wages have grown by 11.3 per cent over the past five years and grown by 30.9 per cent over the past decade. 
Using a different measure of wages – average ordinary time earnings for full-time adults – wages rose 11.7 per cent in the five years to November (December quarter) and lifted 38.6 per cent over the past decade. 
The maximum standard rate of the aged pension has lifted by 10 per cent over the past five years and increased by 53 per cent over the decade. The maximum partnered rate of the aged pension increase by 10 per cent over the past five years and increased by 38 per cent over the past decade. 
Cheaper prices 
Most Aussie consumers would be surprised at the breadth and depth of goods that have become cheaper over time. Together with items like clothes, shoes and electrical goods, cars are cheaper than a decade ago – down by over 9 per cent. And then there are staples like eggs (-0.8 per cent), bread (-0.9 per cent) and milk (-14.4 per cent).
Clothing, footwear, cars and a raft of electrical goods have become cheaper over time. In part, this is a global trend, reflecting more efficient production techniques for large scale manufactured goods. Consumers across the globe have benefitted from the greater availability of higher-quality/lower-priced goods. 
Internet purchases have also proven beneficial. Consumers can buy goods whenever they want and wherever they are. In economics, this can be explained as an expansion of supply or choice of goods – putting downward pressure on selling prices. Dearer prices
 When people bemoan the rising cost of living, they are primarily thinking about utilities, child care, education and medical services such as health insurance. The prices of these items have lifted notably over both the last five years and the past decade. 
The good news is that governments have been successful in reducing utility prices with both gas and electricity now cheaper than a year ago. Child care costs have also fallen over the past year. But health insurance fees have lifted by 4.1 per cent over the past year, well ahead of the rate of inflation.
What are the implications?
The conventional wisdom is that the cost of living is soaring. The reality is that the cost of living is growing at the slowest pace in a generation. Now while the cost of living is rising as it always does in a growing economy, annual inflation has actually eased – not just in the past five years but on far longer timeframes.
Our parents and grandparents would been accustomed to inflation rates near 2 per cent and indeed current-day inflation is more akin to that seen in the 1950s and 1960s. 
A raft of goods and services has become cheaper – not just over the past year but many items are cheaper than a decade ago. Thank technology, thank the efficiency and productivity of businesses across the globe.
While price growth has eased, so has wage growth. In a globalised world, businesses are finding it harder to lift prices of their finished products or services. So it is harder for companies to give out pay increases similar to those awarded a decade ago.
Importantly, incomes are growing at a faster pace than prices, so many goods and services have become more affordable.
In the globalised world, businesses needs to stand out. That is, businesses need to find that point of difference with their competitors or their ‘uncommon offering’. Aussie businesses not only can win more market share at home, they can tap into the global marketplace.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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Inflation is at a 55-year low: CommSec's Craig James

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<img src="https://counter.theconversation.edu.au/content/83211/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
A contradiction is emerging between how consumers should be feeling and what the heads of companies expect them to do.
What we know about low wages growth and underemployment seems to suggest households would be tightening the purse strings but the sentiment of business leaders is very positive in sectors relying on consumer spending.
Wages are struggling to keep pace with the prices of the things we buy and average hours worked (per worker) have also been trending down or flat at best. This is not a picture of robust consumer finances.
On top of this retailers are facing the threat of competition from US giant Amazon. Yet according to our analysis of the outlook of leaders of Australia’s ASX 200 companies, positivity has increased.
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.36.49%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.36.49%20AM.png" alt=""> 
The sentiment of business leaders has remained positive and improved over the past 12 months according to our analysis. The “polarity” score, which measures whether the sentiment is positive or negative, has increased from 0.11 to 0.15 (a statistically significant improvement).
We also looked at how subjective these statements were and found there’s been no significant increase in how opinionated these statements are.
Our findings also mirror other business confidence surveys and even the Reserve Bank of Australia’s own outlook, which also paints a buoyant picture. The RBA expects growth in the economy to strengthen gradually to be around 3% in the first half of 2018. The RBA expects wage growth to gradually pick up over the next year or two and for average hours worked to increase somewhat.
Similarly, the Westpac-AusChamber Actual Composite index strengthened in June 2017, rising 1.8 points to 65.0. This factored in a strengthening in the labour market, as manufacturing firms plan to hire more workers and manufacturing wages rise. And the NAB business confidence survey also reveals that business conditions and confidence are improving.
The positive outlook for economic growth according to the RBA is driven by resource exports notably iron ore and liquid natural gas (LNG) production, household consumption including retail sales, and non-mining business investment. The RBA also expects wage growth to soon pick up.
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.37.59%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.37.59%20AM.png" alt=""> 
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.39.08%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.39.08%20AM.png" alt=""> 
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.40.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.40.00%20AM.png" alt="">
These drivers are reflected in our sentiment analysis. Business leaders in ASX categories relying on household spending, have stronger than average positive outlook on the future, with an average score of 0.18.
This was led by businesses like JB HiFi (0.41), TabCorp (0.23) and Flight Centre (0.18); and also consumer staples led by Ardent Leisure (0.50), Treasury Wine Estates (0.38) and Coca-Cola Amatil (0.18).
The outlook for manufacturing is also positive due to a range of factors such as infrastructure spending by governments, stronger world growth, and improved international competitiveness due to a lower currency, commercial construction and home building, according to the Westpac-AusChamber index. This is supported by our analysis which found stronger than average sentiment from business leaders in the materials sector (0.17), through companies such as Amcor (0.26).
But the outlook isn’t all positive among our business leaders. Sentiment was weaker than average in utilities (0.07) led by AGL (-0.03). This is hardly surprising given the high uncertainty around energy policy – AGL for example owns coal-fired power plants. Also sentiment was somewhat weaker (0.13) than average among industrial company leaders, the sentiment in Qantas’ outlook was negative (-0.03) and property/real estate company Lend Lease (0.09) was also weak.
Perhaps the gloomy slow wage growth and underemployment will catch up to the more positive sentiment on consumer goods and services in company reports. Or this contradiction might simply reflect the high uncertainty in the global environment.
Consumers certainly seem a little confused: the weekly ANZ-Roy Morgan Consumer confidence Index ticked up slightly last week but has jumped around in recent months. Certainly the positive sentiment from business leaders about consumer spending we see in company reports seems optimistic.
<a href="https://theconversation.com/profiles/ross-guest-13155" target="_blank">Ross Guest </a>is Professor of Economics and National Senior Teaching Fellow, Griffith University.
<a href="https://theconversation.com/profiles/ben-hachey-337155" target="_blank">Ben Hachey is</a> Honorary Associate, School of Information Technologies, University of Sydney.
Both are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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