Free childcare and cheaper petrol have driven the cost of living in Australia backwards for only the third time on record.

The record 1.9 per cent fall in the consumer price index across the June quarter adds to a picture Prime Minister Scott Morrison says everyone recognises is the negative economic impact of the coronavirus pandemic.

The Australian Bureau of Statistics reported the annual inflation rate at -0.3 per cent on Wednesday.

It’s the first time in 22 years the annual rate has been negative and only the third time on record.

The fall was driven largely by free childcare and preschool and a nearly 20 per cent drop in petrol prices.

CommSec chief economist Craig James said the last time inflation dropped that much in three months was in 1931, when it was measured on a different index.

“Fortunately policymakers today have responded differently to back then, applying significant fiscal and monetary stimulus to limit the length and severity of the downturn,” he said, noting prices were tipped to rebound in the September quarter,” he said.

“The last thing anyone wants to see is deflation – a sustained period of falling prices – because that could see the current economic downturn being extended.”

NAB’s Kaixin Owyong says inflation is likely to remain positive but low for some years against a backdrop of weak activity and wages.

Mr Morrison said he was more concerned by Tuesday’s payroll data, which showed the Victorian surge of coronavirus cases and second lockdown was dragging down the recovery in other states as well.

“There is a significant Victorian wave but that Victorian wave is impacting the national economy more broadly,” he told reporters in Canberra.

“We’re seeing that in the payroll data, we’re also seeing that in things like table bookings at restaurants and in states that aren’t affected by COVID in the same way that Victoria has been.”

The last thing anyone wants to see is deflation.

He couldn’t estimate now when Australia would reach the final stage of domestic reopening.

In May, leaders planned to reach that position by mid-July but the Victorian community transmission has led several states to delay their economic reopening.

Shadow treasurer Jim Chalmers, who is wrapping up a three-day 1800 kilometre tour of central Queensland, says people are being realistic about the prospect that border closures and business restrictions will be a feature for some time.

“They’re pretty accustomed out here to dealing with difficulty – usually weather-imposed but in this case a pandemic – so whatever the rules are, I think they’ll just make do,” he told AAP.

“There’s a real sense in these parts of Queensland that, having got through the worst of it so far, they’re trying to plan for the future and re-tool and regroup as the economy gets back on its feet.”

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