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Pricing
Over the 12 months to the end of December 2010, the cost of financial services (excluding insurance) increased by 2.0% compared with an increase of 2.7% for the CPI.
During the quarter, the Reserve Bank of Australia increased interest rates by 25 basis points (i.e. in November 2010). Banks also passed through additional interest rate increases to selected lending products as a result of the continued funding cost pressures they face. Banks also passed on interest rate increases to a range of deposit products. Competition for deposits remains strong with the average ‘special’ rate on term deposits being priced well above the official cash rate (6.15% vs 4.75%). As a result, on a quarterly basis, the price of deposit and loan facilities fell by 1.3%.
Over 2008, the fall-out from the sub-prime crisis impacted on banks’ cost of funds (and hence pricing). The significant increase in the price of financial services over the year to June 2008 (10.6%), in particular, was a result of four increases in the cash rate by the RBA as well as increases made by banks themselves.
From September 2008 to April 2009, the RBA reduced the cash rate by 425 bps. Prices of bank products and services fell considerably over that period. The chart shows a fall in the rate of annual increase in the price of financial services which then turned strongly negative over that period.
From October 2009 to May 2010, the RBA increased interest rates six times with each increase being 25 basis points. This increased the price of financial services over that period.
Two expenditure classes make up financial services i.e. deposit and loan facilities and other financial services. Over the past 12 months, the price of deposit and loan facilities increased by 2.1%.
Over the year to June 2008 the price of deposit and loan facilities had grown by a record amount of 16.2% while by June 2009 these prices had fallen by a record amount (17.9%).
Prices of Other financial services increased by 1.9% over the past year. .
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|
Financial Services |
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|
Annual change |
Deposit and loan facilities |
Other financial services |
Total |
CPI |
|
to June 2006 |
1.0% |
3.0% |
1.9% |
4.0% |
|
to September 2006 |
1.1% |
3.2% |
2.1% |
3.9% |
|
to December 2006 |
-0.7% |
3.2% |
1.0% |
3.3% |
|
to March 2007 |
0.8% |
2.9% |
1.7% |
2.4% |
|
to June 2007 |
0.6% |
2.3% |
1.3% |
2.1% |
|
to September 2007 |
3.4% |
3.9% |
3.5% |
1.9% |
|
to December 2007 |
5.6% |
5.0% |
5.3% |
3.0% |
|
to March 2008 |
7.6% |
6.7% |
7.2% |
4.2% |
|
to June 2008 |
16.2% |
3.1% |
10.6% |
4.5% |
|
to September 2008 |
16.0% |
1.6% |
9.8% |
5.0% |
|
to December 2008 |
10.8% |
0.8% |
6.5% |
3.7% |
|
to March 2009 |
-6.0% |
-0.5% |
-3.6% |
2.5% |
|
to June 2009 |
-17.9% |
2.6% |
-9.6% |
1.5% |
|
to Sept 2009 |
-17.0% |
-0.5% |
-10.4% |
1.3% |
|
to December 2009 |
-15.4% |
-0.5% |
-9.2% |
2.1% |
|
to March 2010 |
1.9% |
-0.3% |
0.9% |
2.9% |
|
to June 2010 |
6.4% |
0.4% |
3.7% |
3.1% |
|
to Sept 2010 |
3.4% |
3.0% |
3.3% |
2.8% |
|
to December 2010 |
2.1% |
1.9% |
2.0% |
2.7% | Source: ABS
The following chart shows the annual price change for deposit and loan facilities compared with the CPI. It looks similar to the earlier chart showing price changes for financial services versus the CPI, as changes in the price of deposits and loans are the key driver of the change in overall prices of financial services.
The table below shows the contribution of various expenditure categories to the overall CPI for this quarter. Financial services accounted for 12.32 index points or 7.1% of expenditure in the CPI ‘basket of goods’. Housing is the highest contributor to the CPI at 21.7% while food accounts for 16.4%.
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|
CPI Index points |
% of CPI basket |
|
Food |
28.46 |
16.4% |
|
Alcohol and tobacco |
13.33 |
7.7% |
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Clothing and footwear |
5.63 |
3.2% |
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Housing |
37.72 |
21.7% |
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House contents & services |
15.08 |
8.7% |
|
Transport |
21.68 |
12.5% |
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. Automotive fuel |
6.68 |
3.8% |
|
Health |
8.62 |
5.0% |
|
Communication |
4.98 |
2.9% |
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Recreation |
18.02 |
10.4% |
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Education |
5.18 |
3.0% |
|
Financial services |
12.32 |
7.1% |
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. Deposit and loan facilities |
6.67 |
3.8% |
|
. Other financial services |
5.57 |
3.2% |
|
Other |
2.98 |
1.7% |
|
|
|
|
|
CPI index |
174.00 |
100.0% | Source: ABS
The contribution of financial services to the CPI basket of goods is now at 7.08%. It reached a series high of 8.05% in September quarter 2008.
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|
Deposit and loan facilities |
Other financial services |
Total financial services |
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Jun-2005 |
4.47% |
3.34% |
7.80% |
|
Sep-2005 |
4.39% |
3.32% |
7.72% |
|
Dec-2005 |
4.47% |
3.33% |
7.80% |
|
Mar-2006 |
4.34% |
3.33% |
7.67% |
|
Jun-2006 |
4.34% |
3.31% |
7.65% |
|
Sep-2006 |
4.27% |
3.30% |
7.58% |
|
Dec-2006 |
4.30% |
3.33% |
7.63% |
|
Mar-2007 |
4.27% |
3.34% |
7.61% |
|
Jun-2007 |
4.27% |
3.31% |
7.59% |
|
Sep-2007 |
4.34% |
3.37% |
7.70% |
|
Dec-2007 |
4.41% |
3.40% |
7.81% |
|
Mar-2008 |
4.41% |
3.42% |
7.83% |
|
Jun-2008 |
4.75% |
3.27% |
8.03% |
|
Sep-2008 |
4.79% |
3.26% |
8.05% |
|
Dec-2008 |
4.71% |
3.31% |
8.02% |
|
Mar-2009 |
4.04% |
3.32% |
7.36% |
|
Jun-2009 |
3.84% |
3.31% |
7.16% |
|
Sep-2009 |
3.93% |
3.20% |
7.12% |
|
Dec-2009 |
3.91% |
3.22% |
7.13% |
|
Mar-2010 |
4.00% |
3.22% |
7.22% |
|
Jun-2010 |
3.97% |
3.22% |
7.20% |
|
Sep-2010 |
3.95% |
3.21% |
7.16% |
|
Dec-2010 |
3.89% |
3.20% |
7.08% |
The contribution from deposit and loan facilities to the CPI is at a relatively low level of 3.89%.
Updated February 2011
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