Australia has recorded an uplift in the official inflation rate to 5.1% for the year to March 2022, of which 2.1% was the lift in the March quarter according to the Australian Bureau of Statistics.
There have been many comments about the negative impact of these numbers and pressure that it places on the Reserve Bank to consider lifting interest rates. The RBA generally likes to see inflation in the bank of 2-3% per annum, so moving above that will certainly catch their attention.
Before anyone hits the panic button, it is wise to dig a bit deeper than the headline number and see what is driving the uplift.
Not surprisingly, transport costs have led the rise with a 13.7% increase over the year. This is largely a result of the recent issues in Ukraine pushing oil prices up, and the Government has already taken steps to soften this impact by cutting fuel taxes in half in the budget, a saving of 22.1c per litre at the pump. It is important to note this is a temporary solution lasting just 6 months when it is hoped that the oil price will have normalised by then and therefor soften the impact on inflation.
The next largest lift came from housing which add 6.7% on the year due to increasing rents, interest rates and property values across Australia. This is good news for owners and bad news for renters, however over two thirds of Australians do own property so they have benefited from the uplift. In the rental space, it seems to have been forgotten that many tenants had falling or stagnated rents during the past 2 years so, to some extent, there shouldn’t be much surprise of a recovery spike here, albeit unwelcomed by tenants.
Many of the other areas have also had a higher than usual increase, most likely due to the end of Covid restrictions, continued supply disruptions and labour shortages, but it is important to remember that these conditions should hopefully start to resolve themselves as the world comes back to some level of normal after the impact of the Covid-19 Pandemic.
If they do, we could reasonably expect inflation to once more return to the 2-3% range we have enjoyed over the past decade or so, and hopefully a calmness may return to the inflation conversation in the near future.
You can review the latest CPI numbers in detail here https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release
