<p>One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.</p>

<p>Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.</p>

<p>The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" /></p>

<p>Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.</p>

<p>Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.</p>

<p>The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.</p>

<p>Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.</p>

<p>The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.</p>

<p>That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.</p>

<p>The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.</p>

<p>"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" /></p>

<p>Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.</p>

<p>The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.</p>

<p>The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.</p>

<p>According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.</p>

<p>The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.</p>

<p>A significant component of the proposal is the revitalisation of Blue Street Plaza.</p>

<p>The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.</p>

<p>Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.</p>

<p>Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.</p>

<p>Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.</p>

<p>Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.</p>

<p>The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.</p>

<p>Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.</p>

<p>&nbsp;</p>

<p>FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.</p>

<p>Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.</p>

<p>Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.</p>


Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

<p>Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.</p>

<p>The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.</p>

<p>The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.</p>

<p>The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.</p>

<p><img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" /></p>

<p>The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;</p>

<p>PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.</p>

<p>The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.</p>

<p>Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.</p>

<p>"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.</p>

<p>Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.</p>

<p>A major focus of the design has been the public domain.</p>

<p>The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.</p>

<p>The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.</p>

<p data-end="239" data-start="66">Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.</p>

<p data-end="442" data-start="241">Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.</p>

<p data-end="661" data-start="444">Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.</p>

<p data-end="909" data-start="663">Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a></em></p>

<p data-end="1339" data-start="1019">Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.</p>

<p data-end="1339" data-start="1019">[smartcode_project:default project_id=30959 project_image_fid=292863]</p>

<p data-end="1398" data-start="1341">It has since quietly assembled its next wave of projects.</p>

<p data-end="1805" data-start="1400">Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.</p>

<p data-end="1805" data-start="1400">[smartcode_project:default project_id=152095 project_image_fid=373685]</p>

<p data-end="1991" data-start="1807">The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.</p>

<p data-end="2303" data-is-last-node="" data-is-only-node="" data-start="1993">Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a></em></p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a></em><br />
&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>


First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

<p data-end="492" data-start="327">Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.</p>

<p data-end="843" data-start="497">At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.</p>

<p data-end="1109" data-start="848">The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.</p>

<p data-end="1109" data-start="848">[smartcode_project:default project_id=152022 project_image_fid=375528]</p>

<p>Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.</p>

<p>The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.</p>

<p>"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375531]</p>

<p>The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.</p>

<p>The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375524]</p>

<p>Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.</p>

<p>Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375530]</p>

<p>The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.</p>

<p>The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.</p>

<p>The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.</p>

<p>"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.</p>

<p>"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."</p>

<p>Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.</p>

<p>[smartcode_project_cta:default project_id=152022]</p>


Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

<p>Not all apartment amenities are immediately visible.</p>

<p>Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.</p>

<p>Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.</p>

<p>Online shopping has been one of the biggest drivers of that shift.</p>

<p>Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.</p>

<p>For apartment residents, however, receiving those deliveries isn't always straightforward.</p>

<p>Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.</p>

<p>Australia Post's Parcel Locker network is one response to that shift.</p>

<p><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe></p>

<p>Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.</p>

<p>The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.</p>

<p>That growing presence reflects a broader change in how apartment buildings are being planned.</p>

<p>Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.</p>

<p>It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.</p>

<p>For buyers comparing apartments, these everyday details are becoming part of the decision-making process.</p>

<p>Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.</p>


Parcel delivery is joining the apartment amenity checklist

<p data-end="471" data-start="164">Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.</p>

<p data-end="777" data-start="473">The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.</p>

<p data-end="976" data-start="779">Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.</p>

<p data-end="1119" data-start="978"><a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.</p>

<p data-end="1399" data-start="1121">"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.</p>

<p data-end="1399" data-start="1121">"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."</p>

<p data-end="1605" data-start="1401">The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.</p>

<p data-end="1852" data-start="1607">The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.</p>

<p data-end="1852" data-start="1607"><img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" /></p>

<p data-end="2031" data-start="1854">Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.</p>

<p data-end="2299" data-start="2033">"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.</p>

<p data-end="2588" data-start="2301">Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.</p>

<p data-end="4143" data-start="3991">Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.</p>

<p data-end="593" data-start="417">Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.</p>

<p data-end="789" data-start="598">New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.</p>

<p data-end="1053" data-start="794">IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.</p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a></em></p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a></em></p>


First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

<html><body>
<div>Whoa, there! It seems that inflation has disappeared into a puff of dust!</div>
<div> </div>
<div>Nothing like an outlying result to shake things up a bit, and today's Consumer Price Index (CPI) or inflation result for the March quarter was an absolute ripper!</div>
<div> </div>
<div>Headline inflation printed negative at -0.2 percent. </div>
<div> </div>
<div>This was miles below expectations and the second weakest reading in nearly two decades, taking the annual result all the way down to 1.3 percent (which is well below the target inflation range to 2 to 3 percent).</div>
<div> </div>
<div>The falls were broad based, with six out of the eleven CPI groups recording declines.</div>
<p><a href="/images/2016/04/28/A6.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/04/28/A6.jpg" alt=""></p>
<p> </p>
<div>More importantly, the "core" analytical series, which strips out outlying readings, notched an extraordinarily soft set of numbers to take the respective annual readings to a record low. </div>
<div> </div>
<div>I've diced the data up below to four decimal places, but all you really need to know is that the incredibly weak trimmed mean (0.2 per cent) and weighted median (0.1 per cent) inflation for the quarter have taken the annual readings down to exceptionally low levels at 1.7 per cent and only 1.4 per cent respectively.</div>
<div> </div>
<div><a href="/images/2016/04/28/A5.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A5.jpg" alt=""></div>
<div> </div>
<div>Non-tradables inflation, which is taken to be a reasonable proxy for domestic price pressures, fell to its lowest annual reading since some seventeen years ago in June 1999. </div>
<div> </div>
<div><a href="/images/2016/04/28/A1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A1.jpg" alt=""></div>
<p> </p>
<div>In the normal course of things this sort of result would make an interest rate cut a no-brainer.</div>
<div> </div>
<div>While markets are suddenly pricing a cut as soon as next week on Budget day as an each-way bet, it would nevertheless still be quite a surprise to see such a change of narrative from the Reserve Bank so soon. </div>
<div> </div>
<div>That said many analysts will now see June and August as potentially live meetings for rate cuts, which could take the cash rate down to a record low of just 1.50 per cent.</div>
<div> </div>
<div>Generally it is said that easy monetary policy brings inflation in time, but if a lack of investment is the underlying problem then it is questionable whether more rate cuts alone will bring this to the party.</div>
<p><br><span>Anyway, what a result, and a game-changer, indeed!</span></p>
<div>
<br><strong><span style="text-decoration: underline;">Rental growth slowest since 1994</span></strong>
</div>
<div> </div>
<div>There isn't space here to run through all of the positive (education, medical services, pharmaceuticals) and negative (fuel, transport, holidays) contributors to inflation this quarter in detail, but we can see that rental growth has slowed to its lowest level since 1994. </div>
<div> </div>
<div>As you can see depicted in the chart below, the periods when investors were spooked out of the market (1985 to 1987, and 2008) were also precisely the periods when rents spiked.</div>
<div>
<br>Correspondingly the record surge in investor activity since 2012 in response to low interest rates - which Blind Freddy could have predicted - has led to near-record low levels of rental growth.</div>
<div> </div>
<div>Rampant investor lending has now been successfully stymied so equilibrium should return in due course, as the construction boom also passes its peak. It's always interesting and strangely satisfying when markets work just as they should. </div>
<p><a href="/images/2016/04/28/A2.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/04/28/A2.jpg" alt=""></p>
<p> </p>
<div>Rents have continued to rise modestly in most cities through this cycle, but Darwin (-4.4 per cent) and Perth (-4.4 per cent) are in significantly negative territory year-on-year. On the other hand rents kept rising in Sydney by another +2.3 per cent over the year to March.</div>
<div> </div>
<div><a href="/images/2016/04/28/A4.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A4.jpg" alt=""></div>
<div> </div>
<div>Looking instead at annual rental growth we can see how Perth has gone from star pupil straight into detention, and now must work through its elevated vacancy rates before annual rental growth reverts to the mean.</div>
<div> </div>
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<div>Rental growth was also negative in Canberra over the year to March (-0.6 per cent) but looks to be heading back into positive territory in the national's capital, while annual rental growth in Hobart increased to 1.4 per cent in the first quarter.</div>
<p><strong style="line-height: 1.3em;"><span style="text-decoration: underline;">The wrap</span></strong><span style="line-height: 1.3em;"> </span></p>
<div>Well, well. A stunningly low inflation result which wrong-footed markets and puts interest rate cuts right back into the frame. Game on.</div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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pwargent-M4siyDbqQY

Inflation show stopper: Pete Wargent

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<p>GUEST OBSERVER</p>
<p>The headline CPI surprised in Q1, falling 0.2 percent compared to Westpac’s forecast for +0.4 percent.</p>
<p>The market median was +0.2 percent. The annual rate is now just 1.3 percentyr compared to 1.7 percent/yr in Q4. </p>
<p>The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.2 percent compared to the market’s expectation of 0.5 percent rise, Westpac was slightly higher at 0.6 percent. In the quarter, the trimmed mean gained 0.21 percent while the weighted median lifted 0.14 percent. The annual pace of the average of the core inflation measures is now 1.5 percent from 2.0 percent in Q4 (Q4 was unrevised).</p>
<p>The six month annualised pace of core inflation came in well below the band at a very modest 1.4 percentyr pace, this is the third quarter in a row it has been below the band and the lowest six month annualised pace since the 1.3 percenty print in March 1999 (a seventeen year low). </p>
<p>Traded goods prices fell 1.4 percentqtr following a stronger 0.5 percent in Q4. It is true that the significant fall in auto fuels and, if to a lesser extent, falling fruit prices had a big role to play. But even excluding fuel, food and tobacco traded goods fell 1.3 percentqtr. This is much weaker than we had anticipated. </p>
<p>Non-traded prices rose just 0.4 percentqtr which matched the softer print in Q4. This was due to the softer than expected annual price resetting for health and education. However, more critical to the outlook was the very soft 0.3 percent rise for housing owing to the continue moderation in rents inflation (0.1 percentqtr vs 0.2 percent in Q4) and a very modest update in dwelling prices (just 0.2 percentqtr when we had been looking for a modest bounce from the 0.1 percent print in Q1.</p>
<p><a href="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%204.25.29%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%204.25.29%20PM.png" alt=""><span style="line-height: 1.3em;">The key observation in the March quarter is the across the board weakness in Australia retail prices highlighted by the first disinflationary CPI headline print in seven years and the lowest six month annualised pace of core inflation in seventeen years.</span></p>
<p>All together this highlights downside risks for our medium term inflation forecasts. </p>
<p>But low inflation, on its own, is not a trigger for a rate cut.</p>
<p>Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so. However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut.</p>
<p>With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy. </p>
<p><em>Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/" target="_blank">here</a>.</em></p>
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Headline CPI surprised in Q1: Westpac's Justin Smirk

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<p><span>GUEST OBSERVER</span></p>
<p><span>The headline CPI lifted 0.4 percent in Q4 compared to Westpac’s and the market’s 0.3 percent forecast. The annual rate is reported as 1.7 percent/yr compared to 1.5 percent/yr in Q3.</span></p>
<p><span>The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5 percent/qtr on par with the market’s expectation (Westpac was slightly higher at 0.6 percent/qtr). In the quarter, the trimmed mean gained 0.57 percent while the weighted median lifted 0.47 percent. The annual pace of the average of the core inflation measures is now 2.0 percent from 2.1 percent in Q3 (Q3 was revised from 2.2 percent).</span></p>
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<p><span>Of note in Q4 was some signs of pass through from a weaker AUD in the stronger than expected rise in clothing &amp; footwear (1.6 percent/qtr). However, in the quarter this was more than offset by the weaker than expected print from housing (0.1 percent/qtr). </span></p>
<p><span>The March quarter brings solid “knowns” but many ‘unknowns’ linger.</span></p>
<p><span> The March quarter will bring the usual inflationary pressure from health and education. We also see meaningful seasonal increases in tobacco. Another solid known is the significant offset from the fall in automotive fuel prices. But, as always, a large number of unknowns remain. We don’t have access to a lot of the data the ABS uses and, in many cases, it is not possible to replicate the survey process the ABS uses causing many small errors along the way. We use many alternative sources and surveys to guide our forecasts but in the end a large part of the forecast remains a judgement call.</span></p>
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<p><span>Automotive fuels are again a significant negative.</span></p>
<p><span>One of the most obvious events in the last few quarters has been the extreme volatility in the pump price of automotive fuels. From a peak at the start of the quarter of $1.20/l, the pump price fell to a low of $1.04/l by the end of February before finishing the quarter around $1.12/l. In terms of the quarterly averages, we forecast that the price of automotive fuels will fall around 11percent producing </span><span style="line-height: 1.3em;">a significant —0.39ppt drag on the CPI. Fuel is again the most significant negative we have found for the December quarter CPI.</span></p>
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<p><span>We have noted before that the fall in Australian pump prices has lagged behind the Australian dollar price of Singapore gasoline. But at the end of the March quarter there was a lift in the AUD value of Singapore gasoline that was not reflected in the pump price. We previously had wondered if Australian prices had room to fall further, even with no additional fall in Singapore prices, as the spread returned to more normal levels. For now, at least, that spread has been normalised by rising Singapore prices.</span></p>
<p><span>Fruit &amp; vegetables set to be a modest drag.</span></p>
<p><span>This quarter our forecast for a 3 percent rise in vegetable prices is more than offset by the 7 percent fall in fruit prices. All up the 2.4 percent fall in fruit &amp; vegetable prices will provide a 0.07ppt drag on the CPI.</span></p>
<p><span>There are the usual seasonal rises in cereal products, pork and food additives. However, we are careful to contrast the ongoing price discounting we are seeing in the very competitive groceries space against the ongoing pass through of the weaker AUD to import foodstuffs. Our forecasts see food &amp; non-alcoholic beverages contribute less than 0.1ppt to the CPI.</span></p>
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<p><span><img src="/images/2016/04/19/Screen%20Shot%202016-04-19%20at%202.58.30%20PM.png" alt=""></span></p>
<p><span>Seasonal rise in tobacco prices.</span></p>
<p><span>There is no indexing of tobacco in the March quarter but historically this quarter has tended to see strong rises anyway. We have taken the view that there is a clear risk of a strong rise in tobacco prices again this March quarter. We also note that the Inflation Gauge also reported solid price rises for tobacco in Q1.</span></p>
<p><span>Holiday travel costs will be reversed in Q3.</span></p>
<p><span>Holiday travel was a touch stronger than expected in Q4 following on from a weaker than expected print in Q3. So it would be tempting to put in a softer than usual forecast for Q1 but BITRE (Bureau of Infrastructure, Transport &amp; Regional Economics) data on best price economy airfares is pointing to just a modest decline, as good as flat. So with the Inflation Gauge highlighting some modest gains in domestic holiday travel we have pencilled in a 2percent rise in domestic holiday costs, added to the small 0.5percent rise in international holidays. The rise in international holidays is due to the trickle through impact of the depreciation of the AUD offsetting the usual out of season discounting.</span></p>
<p><span>Dwelling prices have moderated.</span></p>
<p><span>Dwelling prices have been very volatile of late. Melbourne dwelling prices were particularly volatile in 2015 but as the year ended we were surprised by a 0.2percent decline in Sydney dwelling prices - the softest print since Q4 2011. Just as we saw in Melbourne in 2014, we don’t expect this to be repeated and, in fact, a bit of a bounce </span></p>
<p><span>Sydney dwelling prices is very likely.</span></p>
<p><span>Westpac is expecting dwelling prices to hold their more modest pace in Melbourne and Brisbane with the mix of outcomes in the other cities pointing to a 0.6percent gain in Q4.</span></p>
<p><span>Housing overall makes a positive contribution of 0.11ppts.</span></p>
<p><span>Rents are expected to remain on a very benign path with a gain of just 0.3percent (was 0.2percent in Q1 so there are downside risks to this forecast) with modest gains in other housing costs and utilities.</span></p>
<p><span>AUD depreciation will have a modest impact.</span></p>
<p><span>We also expect to see more, if still modest, pass through of the inflationary impact of the AUD depreciation. This will appear as a moderation to the usual seasonal discounting of household contents and services; our forecast for a 0.7percent fall follows on from a 0.6 percent rise in Q4 and an average fall of 1.1 percent in the previous three March quarters. We also expect to see more modest than usual discounting for clothing &amp; footwear, –1.1 percent/qtr compared to –2.5 percent/qtr in the last three March quarters.</span></p>
<p><span>Overall seasonality tends to be negative in Q1.</span></p>
<p><span>Despite the usual seasonal rise in pharmaceutical, heath services and education in Q1, the ABS now reports Q1 with a seasonal negative as our seasonally adjusted estimate, using the current ABS seasonal factors for March 2016, is 0.1ppt stronger at 0.5 percent than our headline CPI forecast. In fact rounding hides the full impact of the seasonal adjustment, 0.15ppts at two decimal places. Seasonal discounting in clothing &amp; footwear and household contents are now having a greater impact on seasonality in the survey than the annual price resetting in administrative prices.</span></p>
<p><span>There is an important caveat however: the ABS conducts concurrent seasonal re-analysis and the revisions to the seasonal factors can sometimes be quite significant. As such, we caution that we can’t be sure what the ABS will estimate as the seasonal impact in Q1. This matters as the components of the CPI are seasonally adjusted before they are trimmed for the core measures. As such, revisions to the seasonal factors can impact not just the current estimate of core inflation but also historical estimates.</span></p>
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<p><span>Core inflation to remain at the bottom of the band, just.</span></p>
<p><span>Westpac is forecasting the average of the core measures to rise 0.6percent in Q4 with the annual pace holding flat at 2.0percentyr.</span></p>
<p><span>Traded goods &amp; services are forecast to fall 1.3 percent/qtr moderating the annual pace to 0.7 percent/yr from 0.8percentyr; non-traded prices are also forecast to rise 1.2 percent/qtr lifting the annual pace to 2.5 percent/yr from 2.3 percent/yr. Non-traded prices remain the key source of inflationary pressures with the focus still on housing and recreation.</span></p>
<p><span>Risks balaced for headline, downside for core.</span></p>
<p><span>A seasonally soft March quarter is a recent phenomena that emerged during the time of a very robust AUD which appears to have inspired greater post-Christmas sales discounting. This March, we are expecting some modest pass through from the weaker AUD but falling petrol prices and modest gains in housing costs will keep the lid on both headline and core inflation. While the Melbourne Institute Inflation Gauge points to a robust Q1 CPI print, we acknowledge downside risks to our core inflation forecast as core inflation has recently tended to surprise us on the soft side. </span></p>
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<p><em>Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/" target="_blank">here</a>.\</em></p>
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Australian Q1 CPI preview: Westpac's Justin Smirk

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<p>Renovation costs in New South Wales rose a sharp 8.11% year-on-year, compared to a national increase of only 1.48%, reveals a new report by services marketplace ServiceSeeking.com.au.</p>
<p>The Renovation Consumer Price Index (RCPI) is a quarterly report by serviceseeking.com.au, analysing 52,000 quotes submitted by tradesman on the website. The report compares the cost of renovating in Q2 FY16 versus the prior year.</p>
<p>For the report, the company used an interactive map that plots price changes across 10 popular renovation services in New South Wales year on year.</p>
<p>NSW was the only state to see a price increase in 10 out of 10 popular renovation services, in part because of trades shortage.</p>
<p>“We're now really starting to see the effects of a cooling property market" said CEO Jeremy Levitt. "As homeowners steer away from purchasing new property, they're investing in their existing properties through value-adding renovations which has pushed prices up.”</p>
<p>The average tradesman charges $64.09/hr, making NSW the second most expensive state to renovate a home (and now more expensive than Queensland).</p>
<p>Carpentry and building saw the largest price increases, up 26.26% and 18.48% respectively.</p>
<p>Although there were across-the-board increases, some services didn’t fluctuate much. For example, prices for electrical work increased 1.23% and concreting rose by 3.18%.</p>
<p><a href="https://www.serviceseeking.com.au" target="_blank">Serviceseeking.com.au</a> has more than 1.96 million jobs listed on its website to date with over 6.8 million quotes compared.</p>
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prateek24-ezbwHMbNAk

Home renovations jump 8% in New South Wales: serviceseeking.com report

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<p>GUEST OBSERVER</p>
<p><strong>The rise in the CPI was well below expectations ... </strong></p>
<p>Regarding the headline, the CPI rose 0.5% in Q3, well below expectations. The annual rate was flat at 1.5%yr and only marginally up on the recent low of 1.3%yr in the March quarter. </p>
<p>When you compare the chart of expected contributions to the Q3 CPI with the chart of actual contributions you can see there was widespread weakness or dissapointment. The one upside surprise is motor vehicles where prices rose slightly rather than falling as expected.</p>
<p><strong>... &amp; the ABS estimates a significant positive seasonality ... </strong></p>
<p>The ABS estimates significant positive seasonality for the Septmember quarter of –0.4ppts. That is prices tend to see a larger rise in Q3. As such, the seasonally adjusted CPI rose just 0.1%qtr in the September quarter. </p>
<p><strong>... so core measures softer at 0.3%qtr.</strong></p>
<p>The core measures, which are seasonally adjusted, came in at an average of 0.3%qtr, softer than expectations for a 0.5%qtr print. In the quarter, the trimmed mean rose 0.28%qtr while the weighted median lifted 0.29%qtr.</p>
<p>The annual pace of the average of the core inflation measures is now 2.2%yr, which is below the mid-point of the RBA’s target band. In addition, the six month annualised pace is just 2.5%yr, a moderated from the recent peak of 2.7%yr in Q1. Before that, the peak for the six month annualised pace of core inflation was 3.1% in 2013Q4. </p>
<p><strong>Is retail competition holding back traded goods inflation? </strong></p>
<p>What was particularly interesting was the very modest rise in food prices of just 0.1%qtr. There was a softer than expect 0.2% rise in fresh fruit &amp; vegetables due to the mix of a 8.2% rise in fruit mostly offset by a 5.9% fall in vegetables. Also falling in price in the quarter were bread &amp; cereal products, dairy &amp; related products, other food products and non-alcoholic beverages. We know that Australia’s grocery chains have been under increasing competition from new entrants who have been improving their domestic supply chains, opening new stores and openly competing with the incumbents on price. We suspect that this is not only holding prices down, despite rising wholesale prices associated with seasonal conditions and the weaker AUD, but actually pushing prices lower.</p>
<p><strong>We were surprise in Q2 by the soft 0.3%qtr rise in meals out &amp; take away foods; in Q3 there was the more normal rise of 0.6%qtr. </strong></p>
<p>Other areas where we are saw ongoing deflationary pressures in tradable goods in the quarter was in telecommunications equipment &amp; services (–2.0%), clothing &amp; footwear (–1.1%), fuel (–1.7%), audio visual &amp; computing equipment (–1.4%) and somewhat surprisingly, domestic holiday travel &amp; accommodation (–0.9%). The later followed a surprising 5.4% fall in domestic holiday prices, which was much weaker than what the airfare data was suggesting. Was the correction or transfer into the CPI data delayed until the December quarter?</p>
<p>We had expected that sometime weaker AUD impact on international holiday prices to appear sometime in 2015 but in the June quarter we were surprised with the fall of 1.3%. We may now be seeing the start of the AUD depreciation impact of the with the 4.6% rise in the September quarter.</p>
<p><strong>Non-traded prices are steady </strong></p>
<p>The pace of non-traded inflation remains modest with a 0.4% gain in Q3 holding the annual pace flat at 2.6%yr, up from the recent low of 2.3%yr in the December quarter 2014.</p>
<p>Helping to hold back momentum in non-traded inflation this quarter were ongoing modest gains in housing costs. This is due, in part, to a moderation in dwelling prices (0.7%qtr/4.3%yr) as the pace eased back in Sydney (1.1%qtr/7.0%yr from 2.4%qtr/8.1%yr in Q2) and we saw the first outright fall in Perth (–0.3%qtr/1.9%yr) since June 2009.</p>
<p>Dwelling costs inflation is starting to ease in Sydney as it has been doing for some time in the other capital cities. In addition, rental inflation continues to moderate, as does utility price inflation. This all matters. Where housing inflation goes, so too goes non-traded inflation.</p>
<p><strong>Looking forward it is housing remains key but watch the spread of price increases</strong></p>
<p>For Q4, as long as crude oil prices don’t surge again from here, or the AUD collapses, then transport fuel should be a modest drag on the CPI. To some extent, the magnitude of the drag will depend on the refining margin for Singapore gasoline, which we don’t expect to narrow in any meaningful way between now and year end.</p>
<p>We are surprised that the weaker AUD has not shown up more in some price resetting for clothing &amp; footwear, household furnishings and, possibly, audio visual and computing equipment. As such, we have tempered our view on AUD pass through this year. We are also closely watching what is happening to motor vehicle prices; the lower AUD is a positive for prices but the Free Trade Agreements we have signed with major auto producers represent a meaningful offset. Was the 1.1% rise in Q3 just a one off price reset or the start of a more meaningful adjustment for Australian auto prices. We expect to see a little more in Q4.</p>
<p><strong>For non-traded inflation, rents continues to ease and dwelling prices have moderated a touch as Sydney prices come off the boil. </strong></p>
<p>Of course after seasonal adjustment and the trimming of the more extreme moves, housing inflation remains a key factor determining the outlook for core inflation. Our preliminary estimate for the average of the core measures for Q4 is 0.6%qtr/2.2%yr with more negatives trimmed out.</p>
<p> </p>
<p><em>Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/" target="_blank">here</a>.</em></p>
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Broad based softness points to a retail price squeeze: Westpac's Justin Smirk

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<div>A surprisingly soft inflation result, and one which puts further interest rate cuts right back in the frame, if indeed they ever snuck out of shot.<br><br>
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<div>Headline CPI printed at 0.5% for the June quarter for an annual result of just 1.5%, well beneath the target range of inflation, thereby locking in the weakest run of inflation results we have seen in years.<br><br>Indeed the index numbers show that the headline result was weaker still, and only rounding took the headline figure up to 0.5% for the September quarter.</div>
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<div>The soft result was influenced by the declining price of vegetables (!), telco quipment &amp; services, and perhaps more predictably, automotive fuel. </div>
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<div><span>Non tradables or domestic inflation came in at a soft 0.4% for the quarter and 2.6% for the year, suggesting that domestic price pressures are fairly subdued, while tradables inflation remained very soft. </span></div>
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<span>Despite the Aussie dollar having tanked all the way from above parity against the US dollar to around 71.3 cents after this release, there still seems to be little evidence of inflationary pressure.</span><br><br><span>This is generally viewed as a sign of weakness for the economy, with wages growth sundued and sentiment too weak to see the higher prices of imports to be passed on to consumers.</span><br><br><span>Most significantly of all the underlying measures of inflation - the trimmed mean and weighted median - both came in at just 0.3% for the quarter, for annual prints of  2.1 and 2.2% respectively.</span>
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<div>These figures will be seen to add to the case for further interest rate cuts with inflation sinking towards the bottom end of the target range and unemployment remaining above 6%.</div>
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<div>Futures markets are undecided about an interest rate cut on Melbourne Cup Day next week (62% chance), but hav priced in a high probability of the cash rate being dropped once again before the Christmas break.</div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Veggie price decline influences inflation outcome: Pete Wargent

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<p><span>GUEST OBSERVER</span></p>
<p><span>The headline CPI lifted 0.7% in Q2 compared to Westpac’s 1.0% forecast and the market’s expectation for 0.8%. The annual rate is now 1.5%yr compared to 1.3%yr in Q1, 1.7% in Q4 and 2.3%yr in Q3.  </span></p>
<p><span>The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5%qtr compared to market expectations of 0.6%qtr and Westpac’s estimate of 0.5%qtr. In the quarter, the trimmed mean gained 0.56% while the weighted median lifted 0.51%. The annual pace of the average of the core inflation measures is now 2.3%yr, a slight moderation from the 2.4%yr pace in Q1.</span></p>
<p><span>The six month annualised pace of core inflation was 2.5%yr in Q2 a moderation from the 2.8%yr in Q1 and moving back toward the 2.1%yr pace at the end of 2015. Core inflation continues to meet the RBA’s expectations for inflation to remain within the band.</span></p>
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<p><span> </span></p>
<p><span>In the June quarter the expected surge in petrol prices was there (12.2%qtr) but the big surprise for us was the soft print on food, –0.2%qtr, in part due to a very soft –1.2% from fresh fruit &amp; vegetables. Also surprising us on the downside was a –3.4% fall in holiday travel. Clothing &amp; footwear rose much as expected at 1.3%qtr.</span></p>
<p><span>Housing costs continue to underpin both core and non-tradeable inflation rising 0.7%qtr driven by a very solid 1.5% rise in dwelling purchase prices. To this was added the solid gains in hospital &amp; medical services (3.4%qtr) and alcohol &amp; tobacco (1.2%qtr). The modest offsets came from pharmaceuticals (–1.8%qtr), audio visual &amp; computing services (–1.6%qtr) and communications (–0.6%qtr). </span></p>
<p><span>Traded goods, boosted by fuel, gained 1.2%qtr/–0.3%yr, while non-traded goods (housing, health and education) were around expectations at 0.5%qtr/2.6%yr. </span></p>
<p><span>Despite the downside surprise on food, the CPI came in much as expected with housing continuing to underpin modest outcomes for core and non-tradeable inflation. </span></p>
<p><a href="/images/2015/07/22/Screen%20Shot%202015-07-22%20at%203.15.55%20PM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="/images/2015/07/22/Screen%20Shot%202015-07-22%20at%203.15.55%20PM.png" alt=""></span></p>
<p><span> </span></p>
<p><em>Justin Smirk is senior economist, Westpac Group and can be contacted <a href="https://au.linkedin.com/pub/justin-smirk/9/1b9/b2a" target="_blank">here</a>.</em></p>
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