Australia’s headline inflation rate was up 1.8% in the September quarter and has risen 7.3% over the year-ended September. The biggest rise in the cost of living since 1990 is biting across the economy, with the Reserve Bank of Australia doing its bit to apply downwards pressure by hiking interest rates very rapidly.
The chart shows a decade of consumer price inflation, with the very dramatic rise in the annual rate clearly observable. This is worrying for every business and household, as much as for Treasurers and central bankers. However, the latter are more concerned by the trimmed mean, which was up 1.8% for the quarter and 6.1% on an annual basis.
The steep rises in more nuanced measures, including those shown below that remove volatile items underscores another factor – there really is nowhere to hide from higher prices.
According to the ABS, the most significant contributions to the last quarter’s CPI increase were dwellings (+3.7%), gas (+10.9%) and furniture (+6.6%). For all that its difficult times, it is worth noting that the level of price growth in new dwellings eased relative to previous quarters, down from 5.6% in the June quarter and 5.7% in the March quarter.
As John Kehoe pointed out in the Australian Financial Review, the RBA expects inflation to be 4.75% in 2023 and above 3% in 2024. On that basis, we can anticipate further rate rises this year (yep, in December) and probably a couple more in early 2023. House prices will come down further and households will be further squeezed. Meantime, the amelioration of wage increases is stuttering along, rather than booming to provide compensation for the cost increases.
Given the levels of household debt that are being serviced by these higher interest rates, we can expect to see even more household belt tightening in 2023 and into 2024. A gentle way back to the target 2-3% inflation rate is possible still, but a recession is about equally likely.
The easing in housing prices is reflected in the Producer Price Index where the quarter-on-quarter increase for inputs to housing construction was up 2.9% compared to 4.3% in the June quarter.
This moderation in building input costs is also reflected in the FWPA Softwood Weighted Average price data series which is referenced elsewhere in this edition of Statistics Count.
