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By Sam Andrews
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18/02/2021

Australians feeling the sting of inflation and rising interest rates could soon face a recession and more pain

As such, any recommendations or statements do not take into account the financial circumstances, investment objectives, tax implications, or any specific requirements of readers. “Flooding in key growing regions at the start of 2022 is still pushing prices for fresh produce higher, with more recent floods set to compound these pressures next quarter,” Langcake said. “Excluding the effect of these schemes, electricity would have risen 15.6% in the quarter,” the ABS said. Energy prices again featured prominently in the list of most costly goods, Marquardt said, with the ongoing war in Ukraine and unplanned outages at coal-fired power stations playing their role in the increase. David Bassanese from Betashares agreed that the March quarter numbers “provided reassuring evidence that inflation likely peaked late last year there were no nasty shocks”. Compared with the December quarter, the headline CPI rate came in at 1.4%, or its slowest pace in five quarters.

“This year some private health insurance premiums also increased in January, adding to the price rise for medical and hospital services. The ABS said prices had continued to rise for most goods and services, but the scale of those increases had slowed. The most significant price rises were Housing (+9.5%), Food and non-alcoholic beverages (+8.1%) and Furnishings, household equipment and services (+7.2%). Inflation Rate in Australia averaged 4.89 percent from 1951 until 2023, reaching an all time high of 23.90 percent in the fourth quarter of 1951 and a record low of -1.30 percent in the second quarter of 1962.

Wage Price Index, Australia

The CPI measures the percentage change in the price of a basket of goods and services consumed by households. ‘Dr Doom’ Nouriel Roubini warns of impending ‘great stagflationary debt crisis’ US-based economist Nouriel Roubini is warning that the world faces a “perfect storm” of high inflation, rising interest rates and recession. The National Accounts, which also measure inflation with what’s called the GDP “price deflator”, has the cost of living rising at 9.1 per cent.

Futures still imply a quarter point move on Nov. 1 to 2.85%, but now show some chance of a half-point hike in December and a peak for rates around 4.20% in July. Russian President Vladimir Putin could retaliate to European sanctions by hampering the supply of gas during the upcoming winter, which would put renewed upward pressure on commodity prices. “In Australia, most people are on variable rate mortgages, so they manage the inflation by tightening their belts and pulling back on discretionary spending,” says Coates. When covering investment and personal finance stories, we aim to inform our readers rather than recommend specific financial product or asset classes.

• ABS Business Indicators released last month showed wages and salaries rose 2.6 per cent seasonally adjusted in the December quarter — well down from the latest Wage Price Index reading of 3.3 per cent.
• Australia’s inflation rate has fallen from its December peak, with annual price increases of 7 per cent for the year to March, down from 7.8 per cent.
• The interest rate hikes will be felt most by marginal borrowers, who Coates estimates account for roughly one-third of new loans.
• The total value of residential dwellings in Australia rose $512.6b to $9,901.6b this quarter, and the mean price of residential dwellings rose $44,000 to $920,100.

“Supply-chain issues, labour costs, and higher demand have continued to push up the cost of building a new house,” Stats NZ general manager Jason Attewell said. Not the only bad news in June, inflation-adjusted incomes based on average hourly earnings fell 1 per cent, down a full 3.6 per cent in comparison to the previous year. Former Treasury Secretary Lawrence Summers said taming inflation will likely lead to a “meaningful” economic downturn.

So what if the call loan rate definition took a more direct approach in its inflation fight by forcing people to save more? “The main reason for the high inflation still is price rises for energy products,” said President of the Federal Statistical Office Dr Georg Thiel. The cost of food also had an impact on the CPI rise with food and non-alcoholic beverage prices rising by 9.8 per cent in the year to June 2022 – the highest rate ever since March 2008. An August report from the agency also noted that the food prices had increased 7.4 per cent in July 2022 when compared to July 2021. Australian personal finance comparison platform Finder, which has been tracking prices of consumer goods, said increased prices have outstripped wages growth across Australia since the pandemic started.

Inflation & Prices

Prior to today’s CPI release, investors viewed the prospect of a May rate rise by the RBA as just a 17% chance, with the next move to be a cut. Economists, though, were more split, with some saying the central bank has at least one more rate rise arrow in its quiver. Treasurer Jim Chalmers welcomed the overall drop in inflation from its peaks, but acknowledged that cost-of-living pain would linger for many households. A major headache for households is that, while the cost of many goods is coming down, the cost of essential goods and services is still rising strongly.

The RBA hopes to bring inflation to heel by raising rates, and to keep it within that 2-3% ‘goldilocks zone’. Australia’s inflation rate accelerated in the September quarter as energy prices soared, heaping pressure on households and businesses and ensuring more interest rate rises to come. The RBA hasraised the cash ratefrom an historic low of .1% at the beginning of 2022 to 3.1% over eight consecutive meetings in a bid to reduce inflation. The annual inflation figure was released last week and came in at 7.8%, which all but confirms the RBA will lift rates again when it meets next week. Over the twelve months to the March quarter, the CPI rose to 7%, showing signs that interest rate rises are flowing through to households and dampening consumer demand. Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly.

Education costs are also very much within the government’s remit, as are pharmaceutical products. It’s not that surprising given the enormous cost of living pressures millions of households are under, and the fact that the policy response to soaring inflation is rising interest rates which, in the short term, puts a further squeeze on budgets. Using the quarterly figures, the ABS noted that the most significant price rises were new dwelling purchases by owner-occupiers (+3.7%), gas and other household fuels (+10.9%) and furniture (+6.6%). “Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international air fares,” said Michelle Marquardt, ABS head of prices statistics. Price rises were broad-based with a closely watched measure of core inflation, the trimmed mean, rising 1.7% in the December quarter. SYDNEY, Jan Australian inflation shot to a 33-year high last quarter as the cost of travel and electricity jumped, a shock result that adds to the case for the country’s central bank to raise interest rates again next month.

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SYDNEY, Oct Australian inflation raced to a 32-year high last quarter as the cost of home building and gas surged, a shock result that stoked pressure for a return to more aggressive rate hikes by the country’s central bank. Australian consumer prices have accelerated from the 5.1% recorded in the first three months, Treasurer Jim Chalmers said, intensifying pressure on households and suggesting further interest-rate increases ahead. The Reserve Bank is aiming to create a better balance between the supply and demand of goods and services, as higher interest rates will slow down the economy. The interest rate hikes will be felt most by marginal borrowers, who Coates estimates account for roughly one-third of new loans. According to the ABS figures released on January 25, annual inflation for year to December was being driven by a steep rise in the cost of new dwellings, up 17.8%; domestic holidays, travel and accommodation, up 19.8%; and fuel costs, up 13.2%.

For some people, the lack of opportunities to spend money during lockdowns helped them to accumulate considerable savings. In some cases, they’re having to make difficult choices about how they spend their money,” says Eslake. “Left untreated, inflation which is too high for too long undermines living standards and jobs, and wrecks economies. Economists such as Dwyfor Evans, a strategist at State Street Global Markets, said the “generally weaker tone” to inflation included the lowest underlying rate since the end of 2021. This service may include material from Agence France-Presse , APTN, Reuters, AAP, CNN and the BBC World Service which is copyright and cannot be reproduced. Ms Sabini is also watching what she spends and that sometimes means cutting back on kitchen staples like cheese and forgetting about overseas travel for a while.

RBA is firing blanks on interest rates

The problem is exacerbated stagnant wages, which have been decreasing slightly or remaining the same for the past five years. Australia is experiencing record levels of inflation as a result of knock-on effects from the COVID-19 pandemic, Russia’s invasion of Ukraine and strong consumer demand. To the extent any recommendations or statements of opinion or fact made in a story may constitute financial advice, they constitute general information and not personal financial advice in any form.

Travel was one of the main cost culprits in the December quarter with prices for domestic holidays up 13% and overseas jaunts almost 8%. “We think that actually the RBA is going to need to hold at that restrictive level for quite some time, because there is such a gap between demand and supply at the moment in the Australian economy.” “We expect another 25-basis-point hike in the cash rate in the April and the May meetings, which would take the cash rate to a terminal rate of 4.1 per cent,” she said. We’re at that point in the economic cycle where officials are comfortable to admit they’ve made mistakes. She said inflation still remains too high, which would suggest further rate increases are warranted to bring it under control. On Tuesday afternoon, financial markets were pricing in a 92 per cent chance of rates being held at the RBA’s next meeting.

Several economists now say the Reserve Bank will be left with little choice but to slash interest rates, potentially as early as later this year, to avoid that kind of bleak economic picture. Bureau of Statistics figures show Gross Domestic Product rose 0.5 per cent for the December quarter, well below what economists were expecting. “Interest rates affect every loan across the economy, whether it’s a mortgage or a business loan. Higher rates make it more expensive to service your loan, and therefore cause you to cut back in other areas,” Gray explained. Yet for the first time in two years, Australian motorists will see some relief as fuel prices have dropped.

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The headline https://1investing.in/ price index for the first three months of 2023 came in at an annual rate of 7%, the Australian Bureau of Statistics said. The number was in line with economists’ predictions, and slower than the 7.8% pace clocked in the December quarter. Clothing and footwear, education and communication account for remaining 10 percent of total weight. Prices of food, gas, petrol and rent have skyrocketed thanks to the inflation rate rising to 6.1 per cent in June – a 21-year high. Prices of food and non-alcoholic beverages as a group increased to 9.3% in the 12 months to August, with prices rising across most food categories, data from the bureau showed. Prices of fruit and vegetables rose 18.6% in August compared to a year ago, according to the latest update by the Australian Bureau of Statistics.

The biggest contributors to the CPI rise were housing, up 9.8%, food and non-alcoholic beverages, which grew by 8.2% and recreation and culture, which rose the highest amount to 10.2%. Australia’s monthly CPI figure reveals inflation has softened to 7.4% for the year to January, according to new data by the ABS. Global headline inflation will not return to target levels before 2025 “in most cases”, according to the IMF’s most recent report on the state of the global economy.

Volunteers make 200 free meals a week, run regular food relief markets and have a permanent free pantry stocked with non-perishables outside the building. Yarraville Community Centre in Melbourne’s western suburbs is on the frontline of Australia’s cost of living battle. Financial traders generally agree, with the market pricing suggesting a 90 per cent chance that rates will remain on hold next Tuesday, and only a 10 per cent chance of a rate hike.

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As reported earlier, “headwinds”, particularly from overseas, prompted Treasury to slice half a percentage point off GDP growth estimates for the fiscal year that just ended, the current one and next year. To use individual functions (e.g., mark statistics as favourites, set statistic alerts) please log in with your personal account. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Cutting economic ties with China is unrealistic, the chief executive of luxury carmaker Mercedes-Benz told tabloid newspaper Bild am Sonntag, and said attempting to do so would put most of Germany’s industry at risk. The European Central Bank and the Bank of Canada are both expected to hike by 75 basis points this week, while the Federal Reserve should match that at its meeting on Nov. 2. The Reserve Bank of Australia, or the RBA, says inflation is forecast to peak at around 8% in 2022 before dropping in 2023.

Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index jumped 1.8% in the September quarter, topping market forecasts of 1.6%. It may feel like we are in unprecedented inflation territory, but Australia’s inflation rate has been much higher. Chalmers’ Budget also indicated that energy costs could rise by more than 50% next year, prompting calls for the Government to intervene in the gas and electricity market. In Treasurer Jim Chalmer’s first Budget, he attempted to walk the line between providing cost-of-living relief, while curbing inflation. After the RBA’s most recent rate rise, Chalmers spoke of inflation as the “biggest challenge in the Australian economy”.

The ones who are hurting most from the rising prices are those who rent, and those on low incomes who devote most of their income to necessities. And rather than caring about what the RBA does next month, they will be looking to the budget for some relief. The CPI figures still show very high inflation, but are also falling from what it was last year. The Reserve Bank does not need to raise rates until it sees signs of that fall ending – none of which are present at the moment.

Beyond interest rate raises, many cited winding back government spending as a means to cool inflation. About a third polled said the government should impose a super-profits tax on fossil fuel producers, with the proceeds used to reduce cost of services. Lam said prices have been rising since the start of the pandemic as pressures from disruptions in supply chains and high freight costs built up. The rise in energy and fuel — largely exacerbated by the war in Ukraine — also contributed to the cost of transporting food, he said. Costs of fruit and vegetables rose 18.6% in August compared to a year ago, according to the latest update by the Australian Bureau of Statistics. “The tragic events in Ukraine have led to sharp increases in the prices of food and energy. And interest rates are rising around the world from the record lows during the pandemic,” he said.

In a statement, the federal treasurer Jim Chalmers noted this reality, and blamed the former government which exited in May and “nine months of Russian aggression”. “Electricity prices are going to be jumping in December, and that means that inflation is accelerating a little bit,” the economist added. “The renewed rise in inflation in November coupled with strong retail sales data will prompt the Reserve Bank of Australia to press ahead with another 25-basis-point rate hike at its February meeting,” he predicted. ABS data usually shows a drop in holiday and travel costs in November as the school holiday period ends, however this month bucked the trend.

“It should be noted that in contrast to the quarterly CPI which is only revised in exceptional circumstances, the monthly CPI indicator may be routinely subject to revision,” The Australian Bureau of Statistics said,. In a slight reprieve for motorists, fuel prices rose 5.6% in the year to February, down from January’s annual rise of 7.5%. The figures have sparked hopes that the cost-of-living crisis is easing and the RBA Board may decide to pause its run of rate hikes when it meets on Tuesday. He said the headline inflation rate would return to the 2% to 3% target range used by the Reserve Bank by the middle of 2024. The RBA, which is widely expected to lift interest rates by another half percentage point to 1.85%, will release its own forecasts on 5 August with its quarterly monetary policy. The annual food price inflation in Australia picked up to 5.9 percent in the June quarter of 2022 from 4.3 percent in Q1, amid robust consumption as the economy fully reopened in the wake of COVID-19 disruptions.