Introduction to Australia’s Inflation Rate
Australia’s inflation rate, also known as the Consumer Price Index (CPI), has risen by 1.8% in the last quarter and 7.3% annually. This surge in inflation has overtaken the previous figure released by the Australian Bureau of Statistics (ABS) in June, marking the highest inflation rate since 1990.
Understanding the Cause of Rising Inflation
The ABS released the quarterly inflation figures, which coincided with Treasurer Jim Chalmers’ warning in his first Budget that Australians will be facing cost-of-living pressures for some time. The last quarterly inflation update was in July, when the inflation figure came in at 6.1%. To provide a more accurate and up-to-date overview of the economy, the ABS has started publishing monthly inflation data in addition to the quarterly figures. However, the quarterly figure remains the most comprehensive measure of inflation, as it provides a full picture of the economy.
Key Drivers of Inflation
According to the ABS, the most significant price rises were seen in new dwelling purchases by owner-occupiers, which increased by 3.7%, gas and other household fuels, which rose by 10.9%, and furniture, which increased by 6.6%. There have also been strong rises in grocery costs, with all food and non-food grocery items increasing in the September quarter. In the 12 months to the September quarter, fruit and vegetables prices rose by 16.2%, and dairy products increased by 12.1%.
Relief for Motorists
For the first time in two years, Australian motorists will see some relief as fuel prices have dropped. Automotive fuel prices fell by 4.3% in the September quarter as global oil prices have softened. Although the annual movement in the September quarter remains elevated at 18%, it is down from the peak in the March 2022 quarter of 35.1%. However, the ABS notes that fuel prices are expected to increase again in the December quarter due to the fuel excise restoration.
Impact on Cities
No city has been spared from the rising cost of living, with CPI rising across all eight capital cities. The increases ranged from 1.6% in Sydney and Canberra to 2.1% in Adelaide, Brisbane, and Darwin.
The Budget and Inflation
The recent Budget handed down by Treasurer Jim Chalmers aims to provide cost-of-living relief without adding to inflation. The Budget’s five-point plan includes cheaper child care, expanding Paid Parental Leave, cheaper medicines, more affordable housing, and getting wages moving again. The Central Bank is also working to curb inflation with its six consecutive months of rate rises, which currently stand at 2.6%.
How Rate Rises Affect Inflation
According to Alexis Gray, senior economist for Asia Pacific at Vanguard, rate rises work to curb inflation by affecting all Australians and sending a signal to become more cautious about spending money. Higher rates make it more expensive to service loans, causing individuals to cut back in other areas. However, whether these rate rises will bring inflation down over the coming months remains to be seen, as a downwards trend is not expected until 2023.
Conclusion
In conclusion, Australia’s inflation rate has risen significantly, with a 7.3% annual increase, the highest since 1990. The key drivers of inflation include new dwelling purchases, gas and household fuels, and furniture. While motorists may see some relief from decreased fuel prices, the rising cost of living is affecting all cities. The Budget and rate rises aim to provide relief and curb inflation, but the effectiveness of these measures remains to be seen. As the economy continues to evolve, it is essential for individuals to understand the factors driving inflation and how they can manage their finances effectively.
