Inflation has come in higher than expected, increasing the chances of another Reserve Bank interest rate rise next month.
Key points:
- The official Consumer Price Index jumped 7.8 per cent last year
- Travel and accommodation as well as electricity contributed the biggest price rises over the last three months of 2023
- Travel was also among the biggest price rises over the past year, along with building new homes
The official Consumer Price Index from the Australian Bureau of Statistics jumped 7.8 per cent over the year to December.
Economists were generally tipping a 7.5 per cent annual increase in prices, although the RBA had expected an 8 per cent rise in its most recent forecasts from November.
Indeed's Asia-Pacific economist Callam Pickering said continued sharp increases in the cost of essentials, such as groceries and power bills, were putting a lot of strain on people.
"The December figures were nothing short of nasty, with cost-of-living pressures set to provide considerable hardship to households across the nation this year."
"Consumer prices are rising at their fastest pace since 1990. That, of course, marked our nation's last non-pandemic recession. It's a useful reminder of what is at stake if we cannot control inflation soon.
"Persistent inflation of this nature and the monetary policy response required to contain it aren't often consistent with economic growth."
The crucial trimmed mean inflation figure — which excludes the most volatile price moves and is targeted by the central bank — came in at 6.9 per cent for the year to December. Crucially, this is above the 6.5 per cent the RBA had expected.
The market odds for another official interest rate rise next month jumped from around 55 per cent immediately before the data release to more than 75 per cent shortly after, according to Refinitiv data.
BetaShares chief economist David Bassanese believes these figures all but lock in a quarter-of-a-percentage-point rate rise next month, and probably another in March too, which would take the cash rate to a peak of 3.6 per cent.
"Thereafter, there is a good chance the RBA could begin to reverse these rates hikes in the second half of the year if growth does slow and inflation eases as widely expected — and especially if the United States economy tumbles into recession," he added.
Travel and power lead price surge
The biggest price rises for households over the last three months of last year were for domestic holiday travel and accommodation (up 13.3 per cent), electricity (up 8.6 per cent) and international travel (up 7.6 per cent).
"Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares," said Michelle Marquardt, the head of price statistics at the ABS.
"The rises seen for domestic and international travel were notably higher than historical December-quarter movements."
Meanwhile, consumers in Western Australia felt the full force of electricity price hikes this quarter after a government subsidy blunted bill shock in the three months to September.
"The main factor influencing the rise in electricity prices was the unwinding of the $400 electricity credit offered by the Western Australian government to all households last quarter," Ms Marquardt added.
"This was partially offset by the ongoing impact of the Queensland government's $175 Cost of Living rebate from September 2022, and the introduction of the Tasmanian government's $119 Winter Bill Buster electricity discount for concession households."
Other big price rises over the quarter included recreation and culture (+5.4 per cent), clothing and footwear (+2.6 per cent), and insurance and financial services (+2 per cent).
Over the past year, housing (+10.7 per cent), food (+9.2 per cent), and recreation and culture (+9 per cent) had the steepest price increases.
The 9.2 per cent rise in food costs neatly matches a study into prices at the two major supermarkets, Woolworths and Coles, released by investment bank UBS earlier this week.
The price of meals out and takeaway foods jumped 2.1 per cent just over the last three months of 2022, as restaurants and cafes passed on the rising cost of ingredients and staff.
https://news.google.com/__i/rss/rd/articles/CBMiWGh0dHBzOi8vd3d3LmFiYy5uZXQuYXUvbmV3cy8yMDIzLTAxLTI1L2luZmxhdGlvbi1jcGktZGVjZW1iZXItcXVhcnRlci0yMDIyLWFicy8xMDE4OTA3MDLSAShodHRwczovL2FtcC5hYmMubmV0LmF1L2FydGljbGUvMTAxODkwNzAy?oc=5
2023-01-25 00:36:44Z
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