Consumer Price Index (CPI) data for the December 2017 quarter was released earlier this week by the Australian Bureau of Statistics (ABS).

According to the release, headline CPI rose by 0.6% over the quarter to be 1.9% higher over the year.  The Reserve Bank’s (RBA) preferred measure of inflation (underlying inflation) showed an increase of 0.4% over the quarter to also be 1.9% higher over the year.  The RBA has a target range for underlying inflation of 2% to 3% p.a. and the latest data shows that underlying inflation has not been within the target range for two years.

With the release of CPI data ‘real’ changes in dwelling values can also be analysed.  On a nominal basis, national dwelling values fell by -0.3% over the December 2017 quarter however, when that is adjusted for inflation the fall becomes a much greater decline of -1.0%.  That represents the largest quarterly fall in real dwelling values since they declined by -1.3% over the September 2012 quarter.  It was a similar story across the combined capital cities where real dwelling values fell by -1.2% over the quarter which was the largest quarterly fall since December 2011.

 
Across the individual capital cities, nominal changes in values resulted in a decline in values over the quarter in Sydney and Darwin.  Once inflation is accounted for, only Melbourne, Hobart and Canberra recorded real increases in dwelling values over the quarter.  The slowdown in dwelling value growth over the final quarter of 2017 resulted in real value falls in a majority of capital cities.  For Sydney, the -2.7% fall in real dwelling values was the largest quarterly fall since September 2008 when real values were -3.4% lower over the quarter.

 
While both real and nominal dwelling values fell over the final quarter of 2017 they were higher throughout the 2017 calendar year.  Nationally, nominal dwelling values increased by 4.2% in 2017 and were 2.3% higher in real terms.  Perth and Darwin were the only capital cities to record real falls in values over the year however, growth in Sydney decelerated significantly. 

Over the past decade, real dwelling values have fallen in five of eight capital cities and have barely risen within Hobart. Although across the combined capital cities and National indices real dwelling values have increased that has been entirely driven by rises in Sydney and Melbourne.