Inflation: goods, services, tradables and non-tradables

As noted here, the ABS has classified expenditure classes as goods or services based on the majority of products in each class.

• Sixty out of the 87 expenditure classes been classified as goods. They account for 58 per cent of the All groups CPI by weight.
• The remaining 27 expenditure classes have been classified as services. They account for 42 per cent of the All groups CPI by weight.

At the last print, through the year (TTY) inflation in the goods component of the CPI was just a touch above 2 per cent. Whereas inflation in the services component was well over four per cent.

It is a similar story with tradables and non-tradables. According to the ABS:

• Expenditure classes were classified as 'tradable' if either of the export or import ratios were greater than 10 per cent. In aggregate, 47 expenditure classes, accounting for approximately 40 per cent of the CPI by weight, have been classified as tradable.
• The remaining expenditure classes were classified as non-tradable. The remaining 40 expenditure classes, accounting for approximately 60 per cent of the CPI by weight, have been classified as non-tradable. 

At the last print, neither of these components was within the RBA target range. Inflation in the tradables component was a touch below two per cent. In the non-tradables component it was almost four per cent. 

It is interesting to think how all these components are traveling and what that might mean for future prints of the inflation rate. If you are of the view that the Australian dollar will continue its downward walk (in line with commodity prices), you are probably anticipating an inflation rise in tradables (perhaps from from Q2-2012). You might come to a similar conclusion on the goods component of the CPI.