Less than a week from the release of the Consumer Price Index (CPI) data for the March Quarter, Australia remains in the grip of a deadly pandemic with tough lockdowns and social distancing firmly applying the brakes on the economy as we knew it.
In March, like others around the world, the Australian stock market fell by over 25% from record highs, and now the Reserve Bank is warning that Coronavirus (SARS-CoV2) will likely cause the biggest contraction of Australia’s economy since the Great Depression.
The impacts of the response measures kicked in during the later part of the March Quarter putting downward pressure on prices and that key economic indicator for inflation, CPI.
In his economic and financial update delivered on 21 April 2020, the Reserve Bank Governor, Dr Phillip Lowe, warned that Australia should expect a significant inflation rate decline in the June quarter.
“The large fall in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases mean that it is quite likely that year-ended headline inflation will turn negative in June,” he said.
“If so, this would be the first time since the early 1960s that the price level has fallen over a full year.”
Dr Lowe cautioned that the next few months were going to be difficult ones for the Australian economy, but he expected underlying inflation to remain positive.
While we all have plenty to worry about during these strange times, negative inflation will not result in negative indexation of ComSuper pensions, which are adjusted based on changes to the relevant March and September CPI results.
Instead, pensions would be frozen (i.e. no change) under the current indexation method for pensions from the Public Sector Superannuation Scheme (PSS), Commonwealth Superannuation Scheme (CSS), Military Superannuation and Benefits Scheme (MSBS or MilitarySuper).
The freeze would continue until such time as the CPI number for the latest indexation period exceeds the CPI number used for any earlier March or September quarter.
The same situation would apply to pensions from the Defence Force Retirement and Death Benefits (DFRDB) Scheme, but eligible DFRDB pensioners may receive a higher increase due to alternative indexation methods using the Living Cost Index for Pensioners and Beneficiaries or an updated indicative pension linked to Male Total Average Weekly Earnings (MTAWE).
The Australian Bureau of Statistics (ABS) is scheduled to release the March Quarter CPI rates on Wednesday 29 April 2020.