Inflation is climbing at an annual rate of 5.1%, according to the latest Consumer Price Index (CPI), up substantially from December’s figure of 3.5%, as housing and fuel costs surge.
The biggest increases were new home costs, up 5.7% in the March quarter, and petrol costs, up for the seventh consecutive quarter, by a staggering 11% to March 2022.
New home prices recorded their most substantial rise since September 2000 (following the introduction of the GST), with supply chain issues causing a bottleneck in the high-demand construction industry.
Petrol reached a record high of $1.83 per litre last quarter, according to the Australian Bureau of Statistics (ABS), due to the oil price shock caused by the Russian invasion of Ukraine, paired with the ongoing easing of COVID-19 restrictions strengthening global demand.
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It means underlying inflation increased to 3.7%, a level not seen since 2009.
All eyes are now on the Reserve Bank to see whether our all-time-low interest rate of 0.10% will increase too, with next Tuesday’s May board meeting to provide some possible clarity.
After the last meeting, the RBA board announced it would not lift official rates until it saw “actual evidence” that inflation was “sustainably” within the 2%-3% range.
CreditorWatch chief economist Anneke Thomson says economists were expecting today’s figure to be “one of the largest increases that we’ve seen in many years”.
“While much attention has been given to petrol prices … housing makes up around 25% of the basket of goods that the ABS measures, and in the March quarter, rising rents are expected to have a major impact,” she tells SmartCompany.
“Industry data shows that rent has increased by 2.5% across the country over the March quarter, with regional rents rising faster than capital cities. Overall, there are likely to be few goods in the basket that have been untouched by price rises this quarter.”
Thomson predicts a consumer backlash will likely follow as Australians tighten the purse strings across the country, which could hit the hospitality and arts sectors the worst, she says.
“I expect that consumers will increasingly start to pull back on spend in areas where there are good substitutes, or that aren’t essential.
“In terms of credit risk, the impact is being felt by those sectors that are seen as discretionary spend items — such as the food and beverage industry and the arts and entertainment sector.
“These are the two industries identified by CreditorWatch with the highest probability of default.”
Cost of living concerns growing
The latest CPI figures follow a period of relative stasis for Australian inflation, which has rarely been above 5% since 1990 (except during the introduction of the GST).
The CPI has mostly stayed in step with the interest rate ranging between 2-3%, and the cost of living hasn’t ranked highly on the list of concerns for Australians heading into the election — until now.
This year’s ABC’s Vote Compass — which uses your beliefs and values about hot-topic issues to show your political alignment with the major parties — shows the cost of living is the top concern for one in eight respondents.
Today’s inflation figures also come as the federal government’s Cost of Living payments began appearing in the bank accounts of some 6 million eligible Australians, including welfare recipients, veterans, pensioners, and concession cardholders.
The $250 payment — seen as a pre-election sweetener with just 25 days to go before Australians hit the polls — is part of a litany of measures designed to take the pressure off low- and middle-income earners.
In confirming the distribution of the $1.5 billion package, Treasurer Josh Frydenberg boasted that it came “on top of the halving of fuel excise, which has seen fuel prices come down from above $2 per litre to around $1.70 nationally today”.
“Under our cost of living package, more than 10 million Australians will also benefit from a new one-off $420 cost of living tax offset,” Frydenberg continued.
“Combined with our previously legislated tax cuts, low- and middle-income earners will now benefit by up to $1,500 and couples up to $3,000 from 1 July this year.”
The joy might be short-lived, however. The $250 is a one-time payment, something critics have slammed as woefully inadequate as many people struggle on Jobseeker, and the cost of petrol will again increase when the fuel excise is reinstated upon September’s hard deadline.
In addition, the Low and Middle Income Tax Offset was not renewed in March’s federal budget, meaning taxes will rise for about 10 million workers in June 2023.
Prime Minister Scott Morrison announced the Lower Tax Guarantee at the weekend, which promises no new taxes on Australian workers, retirees, superannuation, small business, housing, and electricity, which he says gives “certainty to millions of workers, retirees and to every small business in Australia”.