Rising construction and fuel prices drive Consumer Price Index jump

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Larger than expected increases in construction and fuel prices are responsible for a surge in the Consumer Price Index (CPI).

Underlying inflation has increased to 2.5%, the highest its been since 2014, according to the index of consumer inflation, released by the Australian Bureau of Statistics this morning.

Overall the CPI rose 3.5% during the 12 months to the December 2021 quarter, though only four of the 11 groups of goods and services saw a price rise above 3%.

They are transport (12.5%) housing (4%), furnishings/household equipment (3.6%) and health (3.3%).

The CPI rose 1.3% on its September 2021 rate of 3%, with the biggest price hikes recorded in construction (4.2%) and fuel (6.6%).

Australia has now seen two consecutive quarters of the largest rise in new house prices since September 2000, as busy construction activity combined with shortages of material and labour.

The index shows there were fewer government construction grants compared to the September quarter — meaning heftier out of pocket expenses for new dwellings.

However, there was nothing out of the ordinary for automotive fuel prices, which increased for the sixth consecutive quarter, although today’s index does mark the strongest annual rise in fuel prices in 31 years.

The ABS pointed to higher global oil prices amid economic recovery and lower global supply, finding the national quarterly average price for unleaded petrol increased to $1.64 per litre.

Rent costs in Sydney and Melbourne fell again in the December quarter — the fourth consecutive decrease for Sydney, and the third for Melbourne — while other capital cities saw rental costs increase at around the same rate.

But this only measures the price change in the capital cities, economist and Associate Professor at UNSW Sydney Bruce Bradbury points out.

“Other data shows that rents have risen substantially outside the capitals, so a national price index would probably be higher than the ABS CPI estimate,” he says.

Bradbury also tells SmartCompany the ABS divides goods into ‘discretionary’ and ‘non-discretionary’ categories — and annual inflation is currently 4.5% for non-discretionary, 1.9% for discretionary.

“While both categories of goods are important for people’s living standards, it is likely that increases in the non-discretionary category will have a greater immediate impact on people’s concerns about inflation,” Bradbury continues.

It comes as the jobless rate tumbled to 4.2% last week, an encouraging figure that the Reserve Bank of Australia (RBA) didn’t expect until the end of this year.

All eyes are on interest rates this year amid speculation the RBA will increase the official rate, though it’s been shot down several times by RBA governor Philip Lowe.

Lowe says there’ll be no rate rise until the employment rate is closer to 4% and wage growth is at 3% at minimum (at the moment wage growth is at 2.2%).

Consumer confidence has dimmed amid the surging Omicron variant, dipping to a low not seen since October 2020 during Victoria’s second wave of COVID-19, according to a Roy Morgan poll.

Australian shares are taking a hit too; on Friday S&P/ASX200 index fell 166.6 points (or 2.27 per cent) to 7175.8.

Indeed the ASX clocked its worst performance in 15 months last week, losing almost 3%

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