Latest inflation figures a ‘nasty upside surprise’, economists warn
The past year has seen a substantial increase in consumer prices which has surpassed expectations.
As outlined in the latest data from the Australian Bureau of Statistics, the consumer price index, which monitors inflation across the country, rose by 4 per cent in the last 12 months. The predicted rise was 3.8 per cent.
“Inflation surprised again to the upside and that’ll give the RBA a lot to think about at their next meeting. While there is still good reason to expect inflation to fall over the remainder of the year - even accounting for government policy – the stickiness of some prices continues to be concerning,” said Indeed’s APAC economist, Callam Pickering.
This year has been rough for the cost of living, with AMP chief economist Shane Oliver noting “annual inflation has ticked up every month since March and is now at the highest pace in the past 6 months.”
What’s driving these figures? According to Pickering, government policy may be to blame.
“Government policy has impacted inflation over the past year. The best example of that relates to the introduction of the Energy Bill Relief Fund in July 2023,” he said.
“Electricity prices rose by 6.5 per cent over the past year but in the absence of those government measures prices would have increased 14.5 per cent. Overall inflation is therefore lower than it otherwise would have been.”
Pickering said this is a useful reminder of the importance of carefully interpreting inflation figures.
“Government policy, both at the federal and state level, will significantly influence headline inflation figures and yet they will have minimal impact on underlying price pressures,” he said.
“The RBA will try to look through that noise but it will still be difficult to assess how much genuine progress is being made to reduce inflationary pressures.”
Pickering said the latest monthly inflation figures represent a “nasty upside surprise for the RBA”.
“There is now a distinct possibility that both headline and underlying inflation measures will sit well above the RBA’s expectations by mid-year,” he said.
With inflation already at uncomfortably high levels, we believe that Australian households and businesses need to prepare themselves for another rate hike.”
Some of the highest product and service price increases between May 2023 and May 2024, as outlined by the ABS were:
- Fuel (9.3 per cent)
- Insurance and financial services (7.8 per cent)
- Rent (7.4 per cent)
- Alcohol and tobacco (6.7 per cent)
- Electricity (6.5 per cent)
- Health (6.1 per cent)
Conversely, there were some falls in prices in the year, such as:
- Gas (down 3.9 per cent)
- Furnishings (down 1.1 per cent)
- Meat and seafood (down 0.6 per cent)
