The much-awaited consumer price index (CPI) data is out for the first quarter of 2022. The measure of prices, released by the Australian Bureau of Statistics (ABS), suggests that Australia’s inflation surpassed expectations during the last quarter. The ABS release shows that the CPI rose 2.1% in the March 2022 quarter and 5.1% annually.
The latest CPI data would be crucial for the central bank in making the interest rate decision. The Reserve Bank of Australia (RBA) has already highlighted that the upcoming monetary policy decision will be data-driven. More clarity on the interest rate timeline is likely to be achieved once the wages data is out in May.
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Here are the three key takeaways from the recent inflation data:
1. New dwellings and fuel prices leading the inflation
The prices of new dwelling purchased by owner-occupiers drove an overall rise in CPI during the quarter, surging by 5.7%. Newly built dwellings in Australia have seen skyrocketing prices as labour shortages, and strong demand led to a supply-demand imbalance in the sector.
Additionally, fuel prices leapt following the Russia-Ukraine war, fuelling an uptick in the prices of everyday household items. The rise in automotive fuel prices represented the seventh consecutive quarterly rise seen in Australia. The international pressures led to annual fuel prices reaching their highest since 1990 when Iraq invaded Kuwait.
The automotive fuel series reached a record high during the March quarter, rising by 11%. The oil shock caused by the Russia-Ukraine war and the easing of COVID-19 restrictions together created a dangerous mix for fuel price rises. The ABS release further stated that the national quarterly average for unleaded petrol increased to AU$1.83 per litre during the March quarter.
Tertiary education, which rose 6.3% during the quarter, was another contributor to a significant jump in CPI. The rise in tertiary education highlighted the impact of updated student contribution bands and fees introduced last year.
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2. Vouchers helping curb food inflation
Food inflation was also notable in Australia, as the segment rose 2.8% quarterly. The rise in food prices reflected high transport, fertiliser, packaging, and ingredient costs. COVID-19 related disruptions also played a role in increasing food prices as people resorted to stocking food items.
The prices of vegetables rose 6.6%, while waters, soft drinks and juices rose 5.6%. Prices of fruits jumped 4.9%, and that of beef were higher by 7.6%. However, food programs launched in Sydney and Melbourne were crucial in slowing down food inflation.
The voucher programs decreased out of pocket costs for meals out as well as takeaway foods. The grocery component of the category, which excludes meals out and takeaway food items, rose 4% during the quarter. Apart from food items, inflation also affected other household categories. The prices in the non-durable household products category rose 6.7%, which includes the rise in the prices of toilet paper and paper towels.
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3. Annual inflation hits 20-year high
Consumer prices surged at their fastest annual pace in about two decades in the March quarter. The steep rise in annual inflation is a wake-up call for the Reserve Bank to take swift action to curtail the ongoing rise in prices. The RBA had announced a target range of 2-3% for annual inflation, which would be needed to achieve a rate hike.
The latest ABS data shows that inflation rose 5.1% annually, as strong demand combined with material and labour shortages emerged in the backdrop. Additionally, annual inflation in the prices of goods was at 6.6%, higher than that of services at 3%.
Most importantly, quarterly trimmed mean inflation recorded its strongest movement since the beginning of the series in 2002. Annual trimmed mean inflation was also the highest since 2009. The data for the March quarter reflects the global headwinds seen in the form of delayed shipments and rising shipping costs alongside other domestic inflationary pressures.