Australian Inflation Rate Soars – Forbes Advisor Australia

Inflation is showing signs of easing—albeit slowly—with CPI for the year to July coming in at 3.5%, compared to 3.8% for the month of June, largely as a result of energy rebates.

According to the ABS data, the most significant price increases were in alcohol and tobacco, up 7.2%, housing (4%), food and non-alcoholic beverages (3.8%), and transport (3.4%).

ABS acting head of prices statistics, Leigh Merrington, said that underlying inflation was 3.7% in July, down from 4% in June.

“CPI inflation is often impacted by items with volatile price changes like in automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI.”

Rents also increased by a large 6.9% for the year to July, but this was down from a rise of 7.1% in the 12 months to June, and reflected “continued tightness in the rental market in capital cities”.

The annual rise in new dwelling prices is steady at around 5% over the past year, with builders passing on higher costs for labour and materials.  

But, according to Merrington, the introduction of new state and federal government energy rebates “drove the fall in July”.

“Altogether these rebates led to a 6.4% fall in the month of July. Excluding the rebates, electricity prices would have risen 0.9% in July,” Merrington said.

Business leaders have expressed concern over Australia’s sticky CPI, while banks slash term deposit rates in a double whammy for consumers still waiting on an interest rate cut.

CBA chief executive, Matt Comyn, told The Australian that Australia’s stubbornly high inflation was an issue.

“It was always going to be challenging to get inflation down from where it was and moving in the right direction,” he told the masthead.

Inflation rose to 3.8% annually to June, up from 3.6%. The RBA has an inflation target of between 2% and 3%. The Board has held the cash rate at 4.35% for the past six months and many bank economists are tipping a rate cut next year rather than in late 2024.

The RBA has also signalled that rate cuts were unlikely this year due to persistent levels of inflation, but three of Australia’s big four banks—CBA, ANZ and NAB—have already moved to lower the interest rate paid to term deposits by up to 80 basis points, in anticipation of a cut next year.

The banks have not moved to lower interest rates for existing customers, but the CBA has lowered rates for new variable rate and fixed rate mortgage holders. The move on term deposits drew criticism from Treasurer Jim Chalmers and Labor MPs.

However, it’s not all doom and gloom: NAB research reveals that of the 700 SMBs they spoke with, some 60% planned to invest to grow their business next year.

Australian wages are rising at a steady pace, posting a healthy 4.1% for the year to June, although this is slightly lower than the 4.2% recorded at the end of 2023.

According to fresh data from the ABS, private sector wages grew by .7% in the June quarter of 2024, down from .9% in the March quarter of 2024. Meanwhile, public sector wages rose .9%, up from .6%, seasonally adjusted, in the previous quarter.

ABS head of prices statistics, Michelle Marquardt, said that the lift in public service wages was largely due to newly synchronised Commonwealth public sector agreement increases coming into effect at the same time.

“Pay rises for these jobs had previously been paid at different times across quarters depending on the timing of individual agency agreements,” she noted.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, told the ABC that the RBA will be “somewhat relieved to see wage pressures subsiding”.

“However, absent an improvement in productivity growth, the current pace of wage growth is still a little too strong for inflation to return to target quickly,” he said.

Other data suggests that wages are rising at a much higher pace than inflation. Employment Hero’s real-time wage data from two million employees and the 300,000 SMEs that use the company’s platform has indicated wages growth of 8.8% over the past year.

Employment Hero chief economist, Ben Thompson, said that ‘wageflation’ is an issue for small business.

“The impacts of potentially unsustainable wage growth must also be weighed against ASIC’s findings that business failure rates are nearing recession levels,” he said.

Inflation rose 3.8% for the year to June quarter, leading to fresh hopes that the RBA is done with its run of rate hikes and will keep the cash rate steady when it meets next week.

According to data by the Australian Bureau of Statistics (ABS), housing inflation rose by 1.1%, food and non-alcoholic beverages were up by 1.2%, clothing and footwear by 3.1%, and alcohol and tobacco lifting 1.5%.

The most recent 3.8% CPI figure is a rise on the 3.6% figure recorded for the year to the March quarter, with the ABS noting that “this is the first increase in annual CPI inflation since the December 2022 quarter” when inflation peaked at 7.8%.  However, in good news, trimmed mean inflation—which is a measure of CPI when volatile items are removed and one the RBA pays particular attention to—was 3.9% for the year to June, slightly lower than expected. Monthly CPI fell to 3.8% in June, down from 4% in May.

Many households are no doubt hoping that the moderate CPI figures are enough to persuade the RBA Board to keep the cash rate at 4.35% at its August 5-6 meeting. Some economists, including Deloitte, are worried that another rate rise will tip Australia into recession and push already stretched households to breaking point.

“Today’s CPI release confirms that inflation is as sticky as expected but, importantly, is no higher than the RBA had forecast it to be,” BDO Economics partner Andes Magnusson told the ABC.

RSM Australia Economist Devika Shivadekar, meanwhile, says the economy is “moving in the right direction”.

“The unemployment rate has also marginally increased to 4.1% with greater labour gains in part-time versus full-time employment which aligns with what leading indicators have been hinting at—an imminent softening,” Shivadekar says.

“This all gives further reason for the RBA to hold next week as it slowly starts to see that despite inflation remaining sticky, it is certainly not stuck. A gradual easing in the labour market conditions should complement the normalisation in prices.”

Deloitte economists have warned the RBA that Australia is facing a delicate moment in its economic recovery and further interest rate hikes could “pull the rug out” from a steady, albeit slow, retreat from inflation and crush consumer and business confidence.

In its June 2024 edition of the Deloitte Business Outlook report, economics partner and report lead author, Stephen Smith, noted that two crucial data drops—June’s quarter inflation out next week and June quarter economic growth released in early September—”bookend” the RBA’s August meeting and the release of labour force employment figures.

The first tranche of inflation figures will create a “fork in the road” for potential economic outcomes, Smith argued.

“Down one road, a high June quarter trimmed mean inflation result could force the hand of the RBA to lift interest rates once more in early August, further crushing household and business confidence and wiping out the benefits of tax cuts and real wage gains in the second half of 2024,” Smith said.

“Down the other road, the June quarter inflation result may be more benign, consistent with the slower pace of growth in the Australian economy. That would see the RBA hold interest rates steady again next month, enabling households to lead a steady recovery in economic growth in 2024-25.”

Smith was unequivocal that the best path, in either case, was to hold rates.

Furthermore, raising interest rates would do little to cool inflationary hot spots within the economy.

“For example, the housing shortage is pushing up rents, previously high inflation is causing administrative price increases for items like school fees, and insurance premiums are rising because of earlier increases in the cost of claims,” he noted.

“None of this sort of inflation will be tamed by higher interest rates.”

The RBA will meet on August 5-6 to determine whether to lift rates by a further 25 basis points from 4.35% to 4.6%. While quarterly inflation is at 3.6%, the most recent monthly inflation data came in at 4%. The RBA has repeatedly stated it wishes to see inflation return to target of 2% to 3% and has aired its concerns that inflation may become “entrenched”.

Related: Next RBA Meeting

Australian small businesses and consumers will continue to face a tough economic climate next year, as the IMF’s latest World Economic report noted that interest rates in many advanced economies will need to stay higher for longer.

“Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalisation,” the IMF said in its report. “Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates.”

Small business insolvencies are also at a record high, with CreditorWatch data showing a 38% increase in registered insolvencies for the year to May 2024. Most recently, CreditorWatch, predicted 9.1% of hospitality venues were likely to fail over the coming 12 months, which represents a 20% jump over the previous month.

“Multiple interest rate hikes and stubbornly high inflation have forced consumers at all income levels to cut back on spending,” CreditorWatch CEO, Patrick Coghlan says.

“We don’t expect a meaningful turnaround in consumer confidence until the impact of at least two rate cuts has been felt, which won’t be until well into 2025.

Australia’s inflation rate peaked in December 2022 at 7.8%, and while it dipped to 3.6% earlier this year, monthly CPI has inched up to 4%. Many economists are waiting on the more-accurate quarterly CPI for June, released at the end of July, to get a firmer picture of Australia’s inflation rate.

The IMF, meanwhile, has trimmed Australia’s economic growth outlook to 1.4% for this year, down from 1.5% growth forecast in April.

Australian consumers are bracing themselves for further interest rate hikes, with consumer sentiment dipping to fresh lows in July.

The Westpac-Melbourne Institute index of consumer sentiment published today fell 1.1% to 82.7 from its previous level of 83.6 in June.

Westpac senior economist Matthew Hassan said that sentiment remained “stuck in the same deeply pessimistic range that has dominated for two years now”. This is despite most Australian workers receiving a tax cut from this month, and the energy bill rebate kicking in from July 1.

“Fears of persistent inflation and further interest rate rises are again weighing more heavily on the consumer mood, offsetting any boost from the arrival of the tax cuts and other fiscal support measures,” Hassan told Reuters.

Inflation has proven sticker than expected in Australia, coming in at 4% for the most recent monthly CPI figure. Interestingly, the survey found the proportion of respondents anticipating higher mortgage rates in the next 12 months rose from 48.3% in June to just shy of 60%.

However, as CreditorWatch chief economist, Anneke Thompson, notes “overall, the RBA will likely get a sense of relief at these results, as they need sentiment to remain weak and consumers to keep their wallets shut in order to nudge that sticky inflation number down”.

Economists have expressed their surprise at the most recent inflation figure, with Betashares chief economist, David Bassanese, going so far as to describe the May CPI  as a “shocker” and Deutsch Bank now predicting a rate rise at the next RBA meeting.

On June 26, the ABS released a higher-than-expected 4% inflation rate for the year to May, up from 3.6% in April. The Bureau noted that the largest increase in prices were across housing, up 5.2%; food and non-alcoholic beverages, which rose 3.3%; transport, up 4.9%; and alcohol and tobacco, up 6.7%.

Electricity prices rose 6.5% in the year to May, up from 4.2% in April. According to the ABS, the uptick in electricity was due to the Energy Bill Relief Fund rebates  being exhausted by eligible households.

Bassanese said the ABS figures were “a shocker” and meant the question was now turning from rate cuts to rate hikes.

“The upshot… is that it places enormous pressure on the Reserve Bank to not only not cut interest rates anytime soon, but potentially lift them further,” Bassanese said.

“What will be critical is the June quarter CPI report on 31 July. If that confirms the still bubbling inflationary pressure evident in the monthly CPI reports over recent months, the RBA will have no choice but to act.”

HSBC economists are tipping a 30% chance of a rate rise by the end of the year, while Deutsch Bank is now predicting the RBA will raise rates in August by 25 basis points to 4.6%.

“Underlying inflation is intolerably high in Australia,” Deutsch Bank economist, Phil O’Donaghoe, argued.

“In fact, Australia is the only G10 country where underlying inflation has increased since December.”

The Treasurer Jim Chalmers isn’t sugar-coating the latest national account figures, admitting there was some “very concerning elements” to the March GDP figure.

In data released by the ABS, the national economy grew by just .1% in the March quarter—its lowest through-the-year growth since December 2020—while compensation of employees rose 1%, the smallest growth since September 2021.

On a per capita basis, GDP contracted for the fifth consecutive quarter, falling 0.4% in March and 1.3% from a year earlier.

Household spending rose 0.4% in the March quarter, but this was largely driven by essentials, such as electricity, health, rent and food.

“Although we have a lot going for us in the labour market, in the Budget, in terms of real wages, there are some very concerning elements in this,” Chalmers said.

Meanwhile, economist with RSM Australia, Devika Shivadekar, pointed out that the nation remains “in a GDP per-capita recession with the March quarter 2024 making it a fifth consecutive decline”.

She said the economy would be unable to survive another interest rate hike.

“The household savings ratio has fallen again after a recovery in the December quarter 2023, mainly dragged by much more modest compensation of employees and investment income received in the March quarter,” she said.

“Key drags on the economy are consumers who have all but entered hibernation until the outlook brightens.”

There is no doubt that many Australians are doing it tough at the moment, but the cost-of-living pain is not spread evenly: while Generation Z are tightening the purse strings and cutting back, baby boomers are increasing their spend on travel and dining out.

According to CommBank iQ data, those aged 25 to 29 reduced their spending by 3.5% in the first three months of this year compared with the same period last year. Most notably expenditure on travel and household goods fell by 10%, supermarket spend by 4% and insurance by 3% with some younger Aussies giving up health insurance or lowering their levels of cover.

Meanwhile, those over the age of 65, increased their spending on dining and travel—up 7% and 10% respectively—while they increased their outlay on insurance (up 10%) as well as utilities (up 4%).

The data comes on the back of last month’s HSI CommBank report, which found that renters had increased their spending by a meagre 1.3% over the past 12 months. In contrast, those with mortgages increased their spend by 4.5% and those who owned their home outright by 6.3%.

Nevertheless, CBA believes there is hope in sight.

“We expect weak consumer spending and below-trend economic growth to continue throughout 2024, and despite recent inflation data surprising to the upside, we anticipate the RBA will cut interest rates in November this year,” CBA chief economist Stephen Halmarick said.

In a move that surprised few pundits, the RBA has voted to hold the cash rate steady at its most recent meeting, although the central bank has voiced concerns about the pace at which inflation is easing.

“Back in the last meeting, we thought that things were reasonably balanced,” RBA Governor Michele Bullock told a press conference after the meeting. “I think we still think they’re reasonably balanced with perhaps a little bit of a signal that we need to be very watchful on the upside.”

Bullock voiced concerns that inflation—which eased to 3.6% in the March quarter—was losing steam at a slower pace than anticipated. Her cautious remarks has bolstered predictions that the bank may hike once more before the year’s end. Prior to the March inflation figures some banking economists were tipping cuts as early as September.

RSM Australia Economist Devika Shivadekar said “it would be logical for the RBA to await two additional quarterly CPI readings before adjusting its course”.

“Our assessment suggests the RBA will hold its position until two more quarterly inflation reports. Given the link between services inflation and labour market dynamics, the RBA’s attention is likely to shift more towards labour market conditions domestically.

“Easing pressure in the labour market is crucial for tempering price pressures in the services sector.”

Portfolio manager at Insight Investment, Harvey Bradley, said he expected the RBA will hold for an “extended period, until they can be more confident inflation has returned to their target on a sustainable basis”.

“This may take some time and we think cuts will only be on the table around year end,” he said.

The RBA has raised rates 13 times over the past two years, lifting the cash rate from an historic low of .1% to 4.35%. Unemployment remains low at 3.8%, which the RBA would like to see rise to above 4% to ease wage price pressure.

The annual rate of inflation remained steady for the month of February at 3.4%, suggesting CPI is heading in the right direction, although there are still signs the economy is overheated in places.

According to ABS figures released yesterday, the CPI figure for the month of February was .1% lower than forecast, coming in at 3.4% for three months in a row.

“The inflation report was a touch better than feared,” said chief economist David Bassanese from BetaShares, although he added that it was “way too early to know” whether inflation was trending down at a faster or slower pace than the RBA expects. Most banks are still betting that there will be rate cuts in August or September.

However, some parts of the CPI basket are clearly stickier than others. The trimmed mean rose an annual 3.9%, up slightly from 3.8% in January.

Australia’s low unemployment is also an area of focus, falling to 3.7% in February. The RBA wants this rate to rise to 4.5% to help bring down wage growth and inflation.

“There appears to be a disconnect between the latest national accounts, which suggests we have an economy barely growing, and monthly labour market data that suggests the economy is still running hot,” chief economist at KPMG, Brendan Rynne, said after the latest CPI figures.

AMP’s deputy chief economist Diana Mousina told the ABC that unemployment will be in the RBA’s sights when it next meets, and could determine how early the central bank starts cutting rates.

“We have been of the view that the first rate cut for this cycle would be in June,” she said.

“This is still our base case, but the risk is that rate cuts get pushed into August, if the domestic growth backdrop does not necessitate the need for rate cuts in June, with the key indicator to watch being the unemployment rate.”

Among the price categories that bucked the trend and recorded steep increases for February were:

• Insurance and financial service, which rose 8.4%. This was driven by a rise in insurance premiums of 16.5% in the year to February.
• Housing costs, which rose 4.6%, and rents, which rose 7.6% for the year.
• Food and non-alcoholic beverages, which were up 3.6%.
• Alcohol and tobacco, up 6.1%

Electricity prices rose by just 0.3% in the 12 months to February, however, without government rebates electricity prices would have jumped by 14.9% in the 12 months to February. Holiday travel and accommodation prices fell 1.3%, despite the arrival of Taylor Swift for her Eras tour.

A senior economist has predicted that Australians will face straitened times for at least five more years, despite inflation falling and Albanese’s Stage Three tax cuts to come into effect in July this year.

Senior partner with Deloitte Access, Stephen Smith, told Nine newspapers that once population growth, tax and mortgage payments, as well as the annual and monthly inflation figures were taken into account, most Australians were feeling the strain.

He noted that households were facing “an almost 9% drop in real household disposable income per capita”, with financial recovery “to take until almost the end of this decade”.

“Real household disposable income per capita is expected to remain below the trend seen between the 2008 financial crisis and the pandemic for at least the next five years,” he said.

“That means economic conditions will keep feeling pretty tough for a while yet.”

Inflation data this week is expected to show the CPI back down around 4.3%, however, it has proven stubborn compared with the CPI in other advanced economies. The latest inflation figure for the US came in at 3.4%, although the US Federal Reserve began their aggressive hiking cycle before the RBA.

Inflation in Australia peaked at 7.8% in December 2022, but the latest figures released by the ABS shows inflation retreating to 4.1% for the year to December, compared with 5.4% for the 12 months to September.

The Federal Government is resisting calls to share the proceeds of a better-than-expected Mid-Year Economic and Fiscal Outlook (Myefo) as households struggle with interest rate and rent rises, and huge increases to the cost of essential items.

The Federal Government’s most recent Myefo, released yesterday, reveals an additional $64.4 billion in inflows to the government over the next four years, driven by tax receipts from low unemployment, strong commodity prices and record corporate profits in some sectors, especially banking. The figures leave open the door for a second surplus when Treasurer Jim Chalmers delivers his second full Budget in May. However, there was no cost-of-living package for low-income earners or pensioners, out of fear of stoking inflation.

“We know people are still under pressure but inflation is moderating, wages are growing and unemployment is low,” Chalmers said.

Economist Chris Richardson said the strong Myefo figures meant Chalmers could “calm the horses”.

“It’s a very difficult explanation to say to families, ‘We’ve got money and you haven’t, and tough luck, we’re not helping’,” he told Guardian Australia.

On the other side of the ledger, cost blow-outs from the National Disability Insurance Scheme (NDIS) were weighing heavily on the books, as was interest payments that are predicted to surpass the NDIS to become the fastest-growing spending pressure on the budget.

Real wage growth—once inflation is taken into account—was tipped to be around 0.75% this financial year, but was revised down in Myefo to just 0.25%.

The Myefo report expects inflation to be 3.75% this financial year, before dropping to 2.75% in the latter half of next year and into 2025, before reaching the RBA target of 2.5% in the following two years.

Meanwhile, Australia’s unemployment rate has risen slightly from 3.8% to 3.9% in November, according to ABS figures. Treasury expects it to eventually reach 4.25% next year, where it is predicted to remain steady for some years.

Economists, politicians and households have welcomed the latest inflation figure of 4.9% for the month of October, leading to widespread speculation that the RBA will hold the cash rate steady when it meets next week.

According to ABS data released this week, CPI rose at an annual pace of 4.9% in October, which was a vast improvement on the 5.6% increase in September. Markets had forecast the monthly CPI figure to come in at 5.2%.

The most significant contributors to the October annual increase were housing, which was up 6.1%; food and non-alcoholic beverages at 5.3%; and transport costs, which rose by 5.9% for the year to the month of October.

The most recent quarterly inflation figure (for September) came in at 5.4%.

The more positive CPI data has led to speculation that the RBA has done with rate rises for now. Indeed, that seems to be the view of the OECD, which has issued an update to its forecast for the Australian economy next year.

Here is what it had to say: ” “The projections assume that the cash rate will be held at this restrictive level until inflation is clearly declining to the target band, with 75 basis points of interest rate cuts assumed between the third quarter of 2024 and end-2025,” the report said.

Markets, too, are in agreement, pricing in the chance of a rate rise in December at just 2%.

Treasurer Jim Chalmers, meanwhile, was upbeat on ABC radio.

“We are making some welcome progress in the fight against inflation and that will determine the future directory trajectory of interest rates,” he said.

Australia’s inflation rate will stay higher for longer than expected, but governments should do more to ensure mortgage-holders are not the only ones shouldering the burden.

“While headline inflation has peaked, its decline is slow and core inflation remains sticky,” the IMF noted in its report on the state of the Australian economy.

“The authorities have implemented several policy measures which have significantly contributed to stabilising the economy and reducing inflation, but staff assess that more is needed to bring inflation back to target and keep inflation expectations anchored. Continued coordination between fiscal and monetary policy is key to achieving a soft landing, while alleviating the impact of policy tightening on vulnerable households.”

As the report noted, headline inflation has declined to 5.4% in the year to September—down from an all-time high of 7.8%—but this is well above the RBA’s target band of 2% to 3%, and “services inflation remains sticky”.

“Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimise the risk of de-anchoring inflation expectations,” the report said.

Nevertheless, the report added that governments need to play their part in the timing of public investment projects to ensure homeowners aren’t the only ones carrying the burden.

“In that context, continued coordination between monetary and fiscal policy is key to securing more equitable burden sharing. The Commonwealth Government and state and territory governments should implement public investment projects at a more measured and coordinated pace, given supply constraints, to alleviate inflationary pressures and support the RBA’s disinflation efforts. Otherwise, interest rates would have to be even higher, putting the burden of adjustment disproportionately on mortgage holders.”

The nation’s four big banks are all expecting the RBA to raise rates to 4.35% on Cup Day next Tuesday. New ABS statistics released last week revealed that annual inflation was 9% in real terms for working families—much higher than the offical rate of 5.4% to September.

The ASX has slumped and households are bracing for another rate rise in November, after the quarterly inflation figure showed a higher-than-expected increase in CPI.

Yesterday’s release of ABS data revealed inflation rose by 1.2% in the September quarter, up from .8% in June, highlighting the persistent quality of Australia’s inflation problem. However, the annual rate of inflation fell from 6% to 5.4%, and, as the ABS pointed out, the quarterly rise was still lower than rises throughout 2022. The biggest contributor to the quarterly figure was felt at the bowser, with fuel costs rising 7.2%. Electricity also lifted by 4.2% while rents were up by 2.2%.

AMP’s chief deputy economist Diana Mousina told ABC TV that it will be a “coin-toss” as to whether the RBA lifts rates at its November meeting.

“A key number I was looking for was that underlying measure of inflation, and coming out of 1.2% over the quarter, I think that there is a complete 50-50 coin toss as to whether the RBA will hike rates in November because it is a bit of a grey area,” she said.

“I was thinking if the number was closer to 1.3% then the Reserve Bank would probably hike, but 1.2% probably does still mean that inflation projections over the next two years are still intact.”

RBA Governor, Michele Bullock, has previously warned they may need to hike rates further, although she struck a more dove-ish tone after the release of the ABS data yesterday.

“The print came out a little higher than we’d been forecasting at our August statement on monetary policy,” she told a Senate Estimates Committee.

“But it was pretty much where we thought it would come out, given the information we’d come into since then, particularly the monthly CPI indicator, so we thought it was going to be about where it came out.”

As a number of commentators have pointed out, further rate rises may not dampen the kind of inflation Australia is experiencing.

“Increased rates are likely to have limited impact on the biggest inflation drivers including fuel, rents and dwellings,” Stake market analyst, Megan Stals, said.

“Higher oil prices are a supply-side issue, high immigration and low housing supply are keeping property prices elevated, and landlords simply pass on the higher mortgage costs to renters, creating a negative feedback loop.”

After the data was released yesterday, most traders were betting on a rate rise on Cup Day. However, in the wake of Bullock’s comments, Refinitiv data has reported that those bets have reversed, with traders estimating there is a 60% chance of “no change” in rates at the next meeting.

The benchmark S&P/ASX200 index on Wednesday finished down 2.6 points, or 0.04%, to 6,854.3 in response to the figures.

The monthly Consumer Price Index (CPI) indicator rose 5.2% in the 12 months to August, highlighting the persistent nature of Australia’s inflation problem.

According to the Australian Bureau of Statistics (ABS), the 5.2% figure for the month of August is higher than the previous month, which came in at 4.9% for July.

Electricity prices rose 12.7%, while gas prices climbed 12.9% in the 12 months to August, which the ABS argued reflected “increases in wholesale prices”.

“Rebates from the Energy Bill Relief Fund introduced in most cities from July reduced the impact of electricity price increases for eligible households,” the ABS said in a statement.

Petrol prices rose 13.9% in August, compared to a fall of 7.6% in July, reflecting the volatility of automative fuel pricing. According to the Australian Institute of Petroleum, unleaded petrol prices averaged around $2.11 per litre nation-wide last week, while last year they averaged $1.86.

Housing was also up by 6.6% in the year to August, transport costs climbed 7.4%, while food and non-alcoholic beverages rose by a more modest 4.4%. Meanwhile, insurance and financial services rose by a huge 8.8%—much higher than the rate of  inflation. Meanwhile, it was more bad news for tenants, with rents rising 7.8% for the year to August.

However, Michelle Marquardt, head of prices statistics at the ABS, pointed out that inflation remains below the peak of 8.4%  in December 2022.

Australian consumer sentiment has hit levels not seen since the Covid-19 pandemic, declining by 1.5% in September to 79.7 points, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.

The figure is close to its worst level since the Covid-19 pandemic in 2020, and was largely driven by concerns regarding a rise in rents, high inflation and the resurgence of fuel costs as petrol continues to rise. It follows a more modest decline in consumer confidence of .4% in August, and comes despite most economists tipping that the RBA is becoming more dovish in its approach to rate hikes and we may have reached the end of the rate hike cycle.

Westpac’s chief economist, Bill Evans, said that sentiment has “languished at deeply pessimistic levels for more than a year now”.

“Since the survey began in 1974, the only comparable period of such sustained weakness was during the recession of the early 1990s when even weaker levels held for more than two years,” he said.

“The strong message from survey detail is of ongoing intense pressures on family finances. Most notably, the sub-index tracking assessments of finances compared to a year ago recorded another 4.4% fall and is now at its lowest level in this current cycle. Those concerns would have been exacerbated by the 15% lift in petrol prices over the last two months, coming on top of already strong rises in rent and electricity.”

Meanwhile, the ‘time to buy a major household item’ sub-index fell 3% to 76.6 on the index.

“This component is particularly troubling because, unlike the overall index and the other components, it is tracking well below the levels seen in the recession of the early 1990s—the average seen during that period was a much-milder 91,” Evans said.

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The economy has continued to grow at a sluggish pace, with Australian gross domestic product (GDP) growing by a meagre 0.4% (seasonally adjusted) in the June quarter of 2023 while households went backwards, according to new data by the Australian Bureau of Statistics (ABS).

Overall, the economy grew by 2.1% over the year to June, according to the figures, which Katherine Keenan, ABS head of national accounts, said was “the seventh straight rise in quarterly GDP” and “reflected the absence of significant Covid-19 disruptions, such as lockdowns, in 2022-23”.

“Capital investment and exports of services were the main drivers of GDP growth this quarter,” she said.

However, most tellingly, GDP per capita fell 0.3%, which means that households are going backwards in real terms, and followed a similar decline of 0.3% in the March quarter.

Former Reserve Bank economist, Callam Pickering, referred to this contraction as a per-capita recession.

“The economy has now contracted for two consecutive quarters on a per capita basis—creating a so-called per capita recession—but a technical recession remains unlikely,” he told the ABC.

“Australia’s population is growing rapidly, supporting overall economic activity.”

The household saving-to-income ratio fell for the seventh consecutive quarter to 3.2%, which as the ABS noted, is the lowest level since June quarter 2008.

“The fall in the household saving ratio was driven by higher interest payable on dwellings, income tax payable and increased spending by households due to the rising cost of living pressures,” Keenan said.

Unsurprisingly, Australians are tightening their belts in response to inflationary pressures, with household spending rising only marginally at 0.1%.

“Spending on essential goods and services were the main contributors to the rise in household spending, while many discretionary categories detracted. The exception was spending on vehicles which rose 5.8% as supply bottlenecks eased during the quarter,” Keenan said.

The monthly inflation figure has come in at 4.9% in July, lower than the 5.4% reported for the month of June, according to new ABS figures.

Most economists had predicted that inflation would come in at 5.2% for the month of July, leading to speculation that this lower monthly CPI figure will prompt the RBA will keep rates on hold at its meeting next week.

Michelle Marquardt, ABS head of prices statistics, noted that “annual price rises continue to ease from the peak of 8.4% in December 2022”.

The most significant contributors to the July annual increase were housing, which rose by 7.3%, and food and non-alcoholic beverages, up by 5.6%. Meanwhile, price falls were recorded for fuel, down 7.6%, and fruit and vegetables, which were 5.4% lower.

However, as Marquardt notes, the underlying inflation figure—which excludes the more volatile items, such as automotive fuel, fruit and vegetables and holiday travel—was a more modest 5.8% in July, compared to 6.1% in June.

Marquardt also added that energy rebates, introduced from July, eased the impact of electricity hikes on households. Nevertheless, electricity prices rose 15.7% in the 12 months to July and increased 6% in the month of July alone.

“The Energy Bill Relief Fund provides eligible households with rebates ranging from $43.75 to $250 in July. If we exclude the impact of rebates from the July 2023 figures, electricity prices would have recorded a monthly increase of 19.2%,” Marquardt said.

Interest rate hikes and high inflation are prompting consumers to shut their wallets, with the latest figures from the ABS showing household spending grew by 1.8% in June compared to the same time last year.

As the ABS noted, this was the smallest increase in household spending since February 2021.

Contributing to the modest growth in household spending was goods and services, which grew by 8.4% and includes spending on child care, legal services and personal care. Health spending was up by 6.2%, followed by food, which rose by 5%.

According to the ABS, non-discretionary spending rose 4.2%, driven by outlay on food, health, and catering services. In contrast, discretionary spending fell 0.7%—the third decline in as many months—as consumers cut back on clothing and footwear, goods for recreation and culture and furniture, floor coverings and household items.

The data came as Myer, Australia’s biggest department store, revealed that sales had grown by a meagre 0.4% in the June half. The news followed double-digit growth in the December half, and points to the cumulative effect of successive interest rate hikes on consumers with many borrowers coming off fixed rate mortgages in the first half of this year.

The headline Consumer Price Index (CPI) rose 6% for the June quarter compared to the previous year, with inflation rising by a modest .8% in the June quarter alone.

The annual figure for the June quarter is still well ahead of the RBA’s target band of between 2% and 3%, but is down from 7% in the last March quarter. Most economists predicted a quarterly inflation figure of 6.2%, leading many to speculate the RBA will press pause on further rate hikes at its monthly meeting next Tuesday.

As Michelle Marquardt, ABS head of prices statistics, noted, the quarterly rise was the lowest since September 2021.

“While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel,” she said.

It wasn’t all good news, however, with inflation data showing that rents have risen at their fastest quarterly pace in 35 years at 2.5% for the quarter alone. Food prices also rose this quarter by a further 1.6%, international holiday travel and accommodation rose by 6.2%, with financial services, mostly in relation to fees and charges associated with real estate transfers, rose by 2.5% this quarter.

“A shortage of potatoes due to wet weather in key growing regions late last year has continued to place pressure on prices for potato products, including takeaway hot chips, potato crisps and frozen potato products. Vegetable prices rose due to some salad vegetables, like tomatoes and lettuces, coming out of season,” Marquardt said.

Spending on discretionary goods and services was 0.6% lower this May compared to last year, as households tighten their belts in response to surging inflation and cost-of-living pressures.

According to new figures released today by the Australian Bureau of Statistics (ABS), Australians spent 4.8% less on furnishings and household equipment over the past 12 months than the previous year, and 3.4% per cent less on clothing and footwear.

Meanwhile, goods spending fell by 0.9%, which is the largest decline since July 2021. As the ABS pointed out, spending on food “was the only positive contributor”, rising 5.8%.

However, overall household spending rose 3.3% in May compared to the same time last year, largely owing to a 7.2% rise in spending on services. Hotels, cafes and restaurant spending was up 7.8%, while transport costs rose by 7.7%.

ABS head of business indicators, Robert Ewing, said: “While overall household spending rose 3.3% in May compared to the same time last year, it was the lowest growth rate since July 2021. This comes as households respond to cost-of-living pressures.”

The monthly headline inflation figure has come in at 5.6%, which, while well above the RBA’s targeted 2% to 3% range, is nevertheless the smallest increase since April last year.

According to newly released ABS statistics, the monthly headline figure for the 12 months to May is down from April’s monthly price rise of 6.8%.

The most significant price rises were housing, which was up by 8.4%; food and non-alcoholic beverages, which rose by 7.9%; and household equipment, furnishings, and services, up 6%. Rents rose 6.3% in the year to May, up slightly from 6.1% in the 12 months to April.

ABS head of price statistics, Michelle Marquardt, noted that the annual increase of 5.6% to the month of May, contained a modicum of good news.

“While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months,” she said.

She noted that it was helpful to also track the annual movement for the monthly CPI excluding volatile items, such as travel and fuel, to gain a true picture of underlying inflation.

Against this benchmark, underlying CPI rose 6.4% in May, slightly lower than the rise of 6.5% in April and down from a peak of 7.3% in December 2022. Despite the persistence of underlying inflation, many commentators are arguing the headline inflation figure will mean the RBA is less likely to raise interest rates when they meet again next Tuesday.

The RBA Board members voted to continue to raise rates at its most recent meeting after voicing concerns inflation would stay higher in Australia for longer than in other countries.

In newly released minutes from the June Board meeting, the Board cited concerns about persistently high inflation in Australia as a reason for lifting rates.

“Members observed that inflation was already projected to be above target for a number of years and was expected to take somewhat longer to return to target in Australia than in some other countries. This extended timeframe reflected the Board’s desire to bring inflation down while, at the same time, preserving as many of the gains in employment as possible.

“While this remained the Board’s objective, members noted that a more prolonged period of above-target inflation would increase the risk that firms’ and households’ expectations for inflation rise. If this occurred, high inflation would become more persistent with the result that interest rates would need to be higher for longer. This would increase the risk of a sharp rise in unemployment.”

The Board also referenced the recent Annual Wage Review decision of the Fair Work Commission (FWC), increasing award wages by 5.75% for those on the minimum wage.

“In addition to this, a range of public sector enterprise agreements were being negotiated and it appeared likely that some of these would contain wage rises of at least 4% for the first year, followed by smaller increases in subsequent years.

“Recently struck enterprise bargaining agreements would similarly see wages growth for those on enterprise bargaining agreements rise from current levels. Members observed that it was understandable that the lowest paid workers would be compensated for high inflation, but that it would be concerning if wages across a broad range of jobs were to become implicitly indexed to high inflation.”

In addition to discussing raising the cash rate, the Board also considered holding it steady—and reassessing the need for further hikes once more economic data had been published. However, while both arguments were “finely balanced”, the need to bring inflation down within a reasonable time-frame was considered the stronger argument.

Board member were cognisant of the huge task before them.

“Members observed that the economy still looked to be traversing a narrow path on which inflation comes back to target while the unemployment rate rises but remains low. They noted that there were significant risks and uncertainties to staying on this path.”

Just one day after raising interest rates to their highest level in more than a decade, RBA Governor, Philip Lowe, has taken to the conference stage to speak of the challenges in bringing inflation down to the target zone of between 2-3%. Annual inflation is stubbornly high at 7%, and Lowe has consistently used his post-Board meeting statements to extol his commitment to reining in CPI.

Addressing the audience at investment bank Morgan Stanley’s conference in Sydney today, Lowe noted that the path to a soft landing was narrow and “likely to be a bumpy one, with risks on both sides”. He defended hiking rates, while acknowledging they hurt households—some more than 0thers.

“The tool that the RBA has to achieve this balance is interest rates,” he said.

“I acknowledge that the use of this tool comes with complications. But this unevenness is not a reason to avoid using the tool that we have.”

Lowe warned that avoiding lifting rates now, would cause even more problems for Australians and the economy further down the track.

“It is certainly true that if the Board had not lifted interest rates as it has done, some households would have avoided, for a short period, the financial pressures that come with higher mortgage rates,” he said.

“But this short-term gain would have been at a much higher medium-term cost. This would hurt all Australians and the functioning of our economy, and would ultimately require even higher interest rates to bring inflation back down.”

Lowe did not reference the impact of the Fair Work Commission’s decision to grant a 5.75% increase in the minimum wage last week, but warned against accepting the “premise that all workers need to be compensated for inflation”.

“If we accept that premise, inflation at 7% and wage rises match that, what do you think inflation will be next year? It will be higher again and then we will have to have higher wage increases again.”

He stated that mortgage arrears “remain very low, although they have increased a little of late”.

Lowe added: “Banks report that their customers are managing to make their mortgage payments, although many have had to cut back on other spending. So, it is a complicated picture.”

His comments came as AMP’s deputy chief economist, Diana Mousina, warns Australia may fall into recession.

“There are already increasing signs that the economy is weakening,” she said.

“The impact of rate hikes is very unequal. All of the burden from higher interest rates (is) being placed on indebted Australian households.” Furthermore, the much-feared mortgage cliff is inching closer for many Australians, many of whom are expected to roll of fixed interest rate loans of around 2% to as high as 6% from July. It is believed some 800,000 people are moving from fixed to variable interest loans this year and next.

Inflation is proving to be persistently stubborn, with the monthly CPI indicator rising to 6.8% in the twelve months to April, according to new data by the ABS.

It marks an increase from the March figure of 6.3% and increases the likelihood that the RBA will raise rates again when they meet next Tuesday.

According to the ABS data, prices for new dwellings lifted by 9.2% in the year to April, while rents rose 6.1%, which was up from 5.3% in March. Food and non-alcoholic beverages lifted by 7.9% and transport costs were up 7.1%, with fuel prices up by a whopping 9.5%.

However, there was some positive data. The ABS also analysed the annual movement for the monthly CPI excluding volatile items and holiday travel, and found inflation rose 6.5% in April, down from 6.9% in March.

ABS head of prices statistics, Michelle Marquardt, said CPI was “often impacted by items with volatile price change such as automotive fuel, fruit and vegetables and holiday travel”.

“It can be helpful to exclude items with volatile price changes from the headline CPI to provide a view of underlying inflation,” Marquardt said.

“When excluding these volatile items, the annual movement of the monthly CPI indicator was 6.5% in April, lower than 6.9% recorded in March.”

She added that fuel was a large contributor to the CPI figure, noting: “The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.”

Annual trimmed mean inflation—which is the average rate of inflation after ‘trimming’ away items with the largest price changes—rose 6.7% in the year to April.

The price of food and grocery prices at Coles and Woolworths rose by an annualised 9.6% increase in April, according to new data by invest bank, UBS.

The data, which has been disputed by the supermarket giants, challenges the notion that inflation has peaked. The official inflation rate is at 7%, down slightly from its 30-year high of 7.8% for the December quarter of 2022.

Coles told Guardian Australia that the analysis did not “capture its full product range or changes in buying volumes”.

“UBS’s report is not an accurate reflection of how we calculate and report inflation,” the Coles spokesperson said.

“UBS’s sample data does not capture our full range of products and does not capture changes in customer buying behaviours which impact our sales volumes and product mix.”

Treasurer Jim Chalmers was attempting to walk a fine line with the Budget hand-down on May 9, by offering a $14.6 billion package of hand-outs to vulnerable households while insisting the measures would not fuel inflation further.

To quote Chalmers: “The government’s cost-of-living measures will directly reduce the CPI in 2023–24 and are not expected to add to broader inflationary pressures in the economy.” He added that inflation has peaked and is expected to fall to return to the RBA’s target band of 2 to 3% in 2024–25.

Some economists fear that the Budget will fan the flames of inflation.

Chief economist at BetaShares, David Bassanese, said the Budget’s forecast economic growth—which came in at 1.5% according to the Budget papers—could provide impetus for the RBA to lift rates again.

“The second Labor budget under Treasurer Jim Chalmers is unambiguously expansionary,” he told ABC.

Meanwhile, senior Barrenjoey economist Johnathan McMenamin also told the ABC that the Budget would bring down inflation expectations, which is as important as curbing headline inflation.

“It will reduce headline inflation. We definitely don’t think it’s disinflationary or deflationary. But we wouldn’t say we characterise this as an inflationary budget” he said.

Over the twelve months to the March quarter, the CPI rose to 7%, showing signs that interest rate rises are flowing through to households and dampening consumer demand.

The figure is slightly higher than the 6.9% that analysts were predicting, but lower than the 30-year-high of 7.8% from the December quarter. Overall, prices rose 1.4 per cent over the March quarter alone. The ABS also released the monthly CPI figure for March, which came in at 6.3%, a fall from the annual rises of 6.8% to February and 7.4% to January.

The quarterly inflation figure is considered more comprehensive than the monthly update, giving a more complete picture of inflationary pressures in the Australian economy.

Michelle Marquardt, ABS head of prices statistics, said while prices continued to rise for many goods and services, many of these increases “were smaller than in recent quarters”.

In its release, the ABS noted that the most significant price rises were gas and other household fuels, which soared by 14.3%; medical and hospital services, which rose by 4.2%; tertiary education costs, which were up 9.7%; and domestic holiday travel and accommodation, up 4.7%.

“Prices for medical and hospital services typically rise in the March quarter as GPs and other health service providers review their consultation fees, and the Medicare Safety Net is reset at the start of the calendar year. This year some private health insurance premiums also increased in January, adding to the price rise for medical and hospital services,” Marquardt said.

“Tertiary education fees were also indexed at the start of the year. This quarter, additional strength was seen in tertiary education as changes in student contribution bands and fees introduced in 2021 as part of the Jobs-ready Graduates Package continued to flow through to the index.”

Market analysts and economists, meanwhile, are speculating whether the drop to 7% inflation is enough to satisfy the RBA or whether they  will resume lifting rates again when they meet next week.

Global strategist at Rabobank, Michael Every, was scathing of the RBA in an interview with the ABC, claiming they had done a “terrible” job trying to rein-in inflation.

“CPI is still going to be between 6 or 7%, and it doesn’t seem like it’s going to come down quickly,” he said.

Global headline inflation will not return to target levels before 2025 “in most cases”, according to the IMF’s most recent report on the state of the global economy.

While baseline inflation is predicted to fall from 8.7% in 2022 to 7% in 2023 “on the back of lower commodity prices”, the IMF predicts that core global inflation is likely to decline more slowly. Australia’s consumer price increases, meanwhile, are predicted to lower from 6.6% in 2022 to 5.3% in 2023 and 3.2% the following year. The predictions are loosely in line with the RBA’s estimate for CPI to be recorded at 4.75% this year and 3.5% in 2024.

Australia’s economic growth will also slow, according to the IMF, to just 1.6% this year and 1.7% in 2024. GDP grew by a 3.7% last year.

IMF’s chief economist, Pierre-Olivier Gourinchas, said the world was entering a “perilous phase” in which “economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner”.

He added:”More worrisome are the side effects that the sharp monetary policy tightening of the last year is starting to have on the financial sector, as we have repeatedly warned might happen. Perhaps the surprise is that it took so long.”

Reflecting these concerns, Treasurer Jim Chalmers told the ABC: “The situation in the world has become more complex and more challenging even over the course of the last few months. And so we won’t be completely immune from that.”

There are clear signs that inflation has peaked with the monthly Consumer Price Index (CPI) coming in at 6.8% in the year to February, according to the latest monthly data from the ABS.

Head of prices statistics at the ABS, Michelle Marquardt, pointed out that this month’s annual increase of 6.8% is lower than the 7.4% annual rise reported in January.

“This marks the second consecutive month of lower annual inflation, also known as ‘disinflation’, from the peak of 8.4% in December 2022,” Marquardt said.

Housing was the most significant contributor to the increase in prices, up 9.9%, closely followed by food and non-alcoholic beverages up 8%, while transport was up 5.6% and recreation and culture rose by 6.4%.

While housing was up in the year to February, it was a lower than January’s housing price increase figure of 10.4%.

“New dwellings grew 13% in the 12 months to February which is the lowest annual growth since February 2022 as price rises for building materials continue to ease,” Marquardt said.

“Rent prices rose again due to the tight rental market, maintaining the 4.8% growth recorded in January.”

In a slight reprieve for motorists, fuel prices rose 5.6% in the year to February, down from January’s annual rise of 7.5%. The figures have sparked hopes that the cost-of-living crisis is easing and the RBA Board may decide to pause its run of rate hikes when it meets on Tuesday.

Related: Tips to Manage the Rate Hikes

Australia’s monthly CPI figure reveals inflation has softened to 7.4% for the year to January, according to new data by the ABS.

ABS head of prices statistics, Michelle Marquardt, pointed out this figure was a drop from the 8.4% rise for the year to December 2022, however, it is well beyond the RBA’s inflation target of 2-3%.

The figure does indicate that rate rises are starting to have an impact on the economy. The RBA has previously conceded there is a 12 to 18-month lag between rate adjustments and any impact on inflation.

The biggest contributors to the CPI rise were housing, up 9.8%, food and non-alcoholic beverages, which grew by 8.2% and recreation and culture, which rose the highest amount to 10.2%.

“Rents are growing more strongly than they were 12 months ago while the increases in new dwelling prices are moderating compared to a year ago,” Marquardt said.

Marquardt noted that airfares and holiday accommodation prices continued their trend of volatility.

“On a monthly basis holiday travel and accommodation prices fell 7.2% in January following a rise of 29.3% in December,” she said.

In response to the monthly CPI figure, Australian Treasurer, Jim Chalmers, said that inflation had likely peaked.

“While inflation is higher than we’d like, we are cautiously hopeful that it has peaked,” Chalmers said in a press conference this afternoon.

Meanwhile, new figures show the Australian economy grew by 0.5% in the December quarter of last year, and by 2.7% through the entire year.

Related: Best Investments to Beat Inflation

Company profits, rather than splurging consumers, are the cause of much of the sharp uptick in inflation, according to recent research by the Australia Institute.

In fact, the left-wing think tank posits that more than two-thirds, or 69%, of inflation above the RBA’s preferred 2 to 3% range, can be traced back to large corporate earnings, in what the Australia Institute has dubbed a “profit price spiral”.

The research revealed that for the most recent data set available, the September quarter of 2022, Australian businesses increased prices by a total of $160 billion per year “over and above their higher expenses for labour, taxes, and other inputs, and over and above new profits generated by growth in real economic output”.

The report went on: “Without the inclusion of those excess profits in final prices for Australian-made goods and services, inflation since the pandemic would have been much slower than was experienced in practice: an annual average of 2.7% per year, barely half of the 5.2% annual average actually recorded since end-2019.

“That pace of inflation would have fallen within the RBA’s target inflation band (equal to its 2.5% target plus-or-minus 0.5%). Even within the RBA’s own policy rule, therefore, current painful interest rate hikes would be unnecessary.”

Director of The Australia Institute’s Centre for Future Work, Dr Jim Stanford, argued that “the dramatic expansion of business profits has gone mostly ignored by the RBA” who have focused instead on a supposed wage-price spiral “which does not exist”.

The RBA Governor Philip Lowe has previously indicated he is concerned about a wage-price spiral that would be a potential precursor to stagflation. The RBA has been aggressively hiking rates on home loans since May last year.

“The pain experienced by workers through this inflationary episode contrasts sharply with an unprecedented upsurge in business profitability at the same time,” Stanford added

Related: Calculate Your Mortgage Repayments

The RBA governor, Philip Lowe, has defended the central bank’s string of interest rate hikes, arguing runaway inflation posed a real threat to the Australian economy.

Lowe was appearing before Senate estimates, in which he was asked about the Board’s decision to hike rates from .1% to 3.35% in the space of 10 months.

Early in 2022, Lowe said that rates were unlikely to rise before 2024, and many people took out hefty mortgages on the back of the RBA’s conjecture.

On Wednesday, Lowe responded to the senators’ questions by highlighting the real economic threat posed by unchecked inflation.

“It’s corrosive for the economy,” Lowe said.

“And all the evidence is if inflation stays high for too long, expectations adjust and that leads leads to higher interest rates and more unemployment.”

Lowe, who has faced calls to step down over the hikes and his past comments, was also at pains to emphasise that he was not the only person making rate decisions, and it was a matter for the entire board to weigh up on the first Tuesday of each month. He said he had heard “with a very heavy heart” of people struggling with mortgages.

Nevertheless, he remained hawkish in his stance that rate rises have some way to go.

“I don’t think we’re at the peak yet but how far they need to go, we’re still unsure,” he said.

Lowe also responded to a report in the AFR that he was seen lunching with bankers right before lifting bond yields.

“I can’t live in a bubble. I need to talk to people. I need to hear what financial markets say and I like asking people questions,” Lowe said.

Interestingly, Lowe conceded that unemployment would have to rise, perhaps by as much as 1%, in order to effectively tame inflation. The RBA has an inflation target of between 2 and 3%. Currently, the inflation rate in Australia is at 7.8%.

Lowe’s appearance came as CBA recorded a bumper half-year cash profit of $5.15 billion—which is a clear sign that while rate rises are hurting mortgage holders, they are a boon for the big four. The banks have come under fire in recent weeks for hiking on one type of product only—home loans—and stalling when it comes to savings accounts.

Treasurer Jim Chalmers has formally asked the ACCC to investigate instances where banks have been slow to pass on interest rate hikes to savers.

Related: Mortgage Repayment Calculator

Household spending rose 11.2% overall in December, compared to the same period last year, as Australians spent up big to gather for the first Christmas in three years without pandemic restrictions.

According to Monthly Household Spending figures released today by the Australian Bureau of Statistics (ABS), air travel was the key driver of growth, with transport recording a 31% surge in spending compared to December 2021.

Spending on services rose 22.7% compared to December 2021; while growth was also seen in hotels, cafes and restaurants (up 21.8%) and miscellaneous goods and services (12.6%). Spending on goods was up by a more sedate 2.7% through-the-year.

“In December, all spending categories recorded through-the-year increases, with services showing more strength than goods,” said head of business indicators at the ABS, Robert Ewing.

Ewing noted that the rate of growth rate in total household spending “continued to ease in comparison to previous months” after peaking at 29.2% in August.

Discretionary spending—which the RBA is trying desperately to curb through rate rises—was up 8.1%, while non-discretionary spending climbed 14.8% in December. These categories peaked +28.1 per cent and +30.2 per cent respectively in August.

Controversial RBA governor, Philip Lowe, will face scrutiny over his decision to combat Australia’s inflation rate with a series of aggressive rate hikes, amid fears the rises could injure Australian mortgage holders and nudge the economy into recession.

At the beginning of 2022, the cash rate was at .1%, but since then Lowe has lifted the cash rate nine times to 3.35%. Furthermore, Lowe had said in 2022 that rates were not likely to lift for another two years, and many Australians took our mortgages in the belief that rates would stay low for a considerable time. He has since apologised for the remarks.

According to a report in the Sydney Morning Herald and The Age, Lowe will appear before a Senate estimates committee in Parliament on Wednesday, February 15.

Liberal senator Dean Smith and Labor senator Deb O’Neill said they would quiz the central bank boss on the impact on households of nine consecutive rate rises—as well as the likelihood of at least two more rate rises this year.

Lowe lifted the cash rate by a further 25 basis points last week and flagged further hikes when he said in a statement: “The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.

“In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Smith will reportedly ask Lowe about the potential for many households to be plunged into mortgage stress this year, and has asked for a comprehensive breakdown of the roughly 800,000 people who will move from a fixed-rate home loan to a much higher variable home loan rate in 2023.

Treasurer Jim Chalmers has sought to distance himself from Lowe’s performance as governor, reiterating the independence of the central bank. However, Lowe’s seven-year term is up in September, with some MPs questioning whether it should be extended. A report last week in the Australian Financial Review revealed that Lowe had briefed traders at the nation’s commercial banks at the same time that bond yields were lifted. An independent review is currently underway into the performance of the RBA and the report, due by the end of March, will no doubt influence Chalmers’ decision to extend or terminate Lowe’s tenure.

Meanwhile, Macroeconomics Advisory chief economist Stephen Anthony has attracted headlines by putting the risk of Australia falling into recession at 70%. Other economists have been more circumspect in their predictions.

Related: Has the RBA Gone Too Far?

The International Monetary Fund (IMF) has concluded that the Australian economy “is on a narrow path to a soft landing, with downside risks” and has labelled interest rate hikes as justifiable in the near-term to tackle inflation.

In its executive board assessment of the Australian economy released on February 1, the IMF said: “With a positive output gap, a tight labour market and high inflation, further monetary policy tightening, complemented by fiscal consolidation, is warranted”.

However, the report card added that “monetary policy needs to continue tightening in the short term as envisaged, but given considerable uncertainty regarding the speed and intensity of monetary policy transmission, the pace of rate increases should continue to be data-dependent”.

The RBA has raised the cash rate from an historic low of .1% at the beginning of 2022 to 3.1% over eight consecutive meetings in a bid to reduce inflation. The annual inflation figure was released last week and came in at 7.8%, which all but confirms the RBA will lift rates again when it meets next week. The RBA is aiming for an inflation target of between 2-3%.

The IMF has slightly downgraded its growth expectations for Australia, with growth slowing from 3.6% in 2022 to an expected 1.6% in 2023.

“Inflation is projected to decline gradually but remains above target until 2024, subject to significant uncertainty,” it said.

“Downside risks to growth stem from a stronger global downturn, persistently high inflation expectations, and rising geo-economic fragmentation.”

On the housing market front—one of the great inflationary pressures for Australian households—the IMF was sanguine: “With tighter financial conditions, housing prices have started declining from their peak. While the financial sector faces significant exposure to housing markets, stability risks appear to remain well-contained, as banks have remained liquid and well-capitalised, while households have built substantial financial buffers.”

However, the financial agency noted that “pockets of vulnerability may nonetheless build up, for example among households that purchased their home recently at high valuations”.

Meanwhile, there are early signs that Australia’s economy is already feeling the strain from high inflation and rising interest rates, with retail sales for December falling 3.9%, according to the Australian Bureau of Statistics (ABS).

The annual inflation rate in Australia has climbed to 7.8% over the year to December, which is the highest annual figure since 1990.

According to Australian Bureau of Statistics (ABS) data released on Wednesday, the CPI rose 1.9% this December quarter. In the June and September quarters, inflation rose by 1.8%.

Travel and Accommodation Drives Quarterly Inflation

According to ABS figures, the most significant price rises affecting the quarterly inflation rise of 1.9% were domestic holiday travel and accommodation, up 13.3%; electricity, up 8.6%; and international holiday travel and accommodation, up 7.6%. New dwelling purchase by owner occupiers rose by a more modest 1.7%.

ABS head of prices statistics, Michelle Marquardt, said: “Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares.

“The rises seen for domestic and international travel were notably higher than historical December quarter movements.”

Marquardt noted that the unwinding of the $400 electricity credit offered by the WA Government to households last quarter was the main cause of the spike in electricity prices.

“This was partially offset by the ongoing impact of the Queensland Government’s $175 Cost of Living rebate from September 2022, and the introduction of the Tasmanian Government’s $119 Winter Bill Buster electricity discount for concession households,” she noted.

Holidays, Restaurant Meals Fuel Annual Inflation

It’s a similar story with the annual inflation figure, which was driven by a steep rise in the cost of new dwellings, up 17.8%; domestic holidays, travel and accommodation, up 19.8%; and fuel costs, up 13.2%—owing partly to the end of the federal government’s fuel excise subsidy.

“Annual inflation for goods such as new dwellings and automotive fuel steadied this quarter, however we saw an uptick in inflation for services such as holidays and restaurant meals,” Marquardt said.

The previous annual inflation rate came in at 7.3%, although today’s figure—while higher than hoped—was not totally surprising, with Treasury forecasting inflation to peak at 8% by year’s end.

However, Prime Minister Anthony Albanese told Channel Nine recently that he was hopeful the worst of Australia’s rising inflation has passed.

Trimmed mean annual inflation—a measure which excludes large price rises and falls caused by supply shocks— increased to 6.9%, the highest since 2003. The RBA was anticipating mean inflation to come in at 6.5%

The data makes it increasingly likely that the RBA will lift rates once more when they meet in February—making it the ninth consecutive rise and undoubtedly placing further pressure on highly leveraged households.

Related: What Causes Inflation?

Australia’s inflation rate, or CPI, rose 1.8% in the last quarter and 7.3% annually, overtaking the ABS’ June figure as the highest inflation rate since 1990.

The ABS released the quarterly inflation figures the day after Treasurer Jim Chalmers warned 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%.

Since September 29, the ABS has been publishing monthly, rather than just quarterly, data of inflation to give economists and politicians the most accurate, up-to-date overview of the economy. However, the quarterly figure remains the most comprehensive measure of inflation because the new monthly updates only record inflation on up to 70% of goods and services, while the quarterly figures provide a full inflationary picture of Australia.

Using the quarterly figures, the ABS noted that the most significant price rises were new dwelling purchases by owner-occupiers (+3.7%), gas and other household fuels (+10.9%) and furniture (+6.6%).

There’s 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 16.2% and dairy products increased 12.1%, the report reads. The recent floods in Victoria are expected to heighten inflationary pressures.

Yet for the first time in two years, Australian motorists will see some relief as fuel prices have dropped.

“Automotive fuel prices fell -4.3% in the September quarter as global oil prices have softened,” the ABS said.

“The annual movement in the September quarter remains elevated at 18%, however, is down from the peak in the March 2022 quarter of 35.1%”,

The ABS noted that fuel prices are expected to increase again in the December quarter due to the fuel excise restoration.

No city has been spared from the rising cost of living, either. Considering all groups in the inflation figure, the ABS notes that CPI rose across all eight capital cities, ranging from 1.6% in Sydney and Canberra to 2.1% in Adelaide, Brisbane and Darwin.

Related: The Bad News on the Budget? Australians will feel the pinch for some time

Will the Budget Help Inflation?

Last night, Jim Chalmers handed down the first Labor Budget since taking on his role as Australian Treasurer in May.

It’s also the first Labor Budget in almost a decade, which Chalmers said will provide “cost of living relief which is responsible, not reckless—to make life easier for Australians, without adding to inflation”.

He also said that “Australians know a complex combination of challenges at home and abroad is pushing up the cost of living”.

“They know that governments can’t make inflation disappear overnight.”

The Budget’s five-point plan for cost-of-living relief includes:

• Cheaper child care;
• Expanding Paid Parental Leave;
• Cheaper medicines;
• More affordable housing;
• And getting wages moving again.

“This is a $7.5 billion package that helps put some money back in people’s pockets, boosts productivity, and grows the economy—but it’s carefully targeted and carefully timed, so that it avoids placing additional pressure on inflation,” Chalmers reiterated in his Budget speech.

The Central Bank is also working to curb inflation, with its six consecutive months of rate rises. As of October, the interest rate is 2.6%.

Speaking to Forbes Advisor earlier this month, Alexis Gray, senior economist for Asia Pacific at Vanguard, explained that rate rises work to curb inflation as they affect all Australians, and send a signal to become more cautious about spending money.

“Interest rates affect every loan across the economy, whether it’s a mortgage or a business loan. Higher rates make it more expensive to service your loan, and therefore cause you to cut back in other areas,” Gray explained.

Whether these rate rises will bring inflation down over the coming months remains yet to be seen, as a downwards trend is not expected until 2023.

Related: Why is Australia’s Inflation Rate so High?

According to leading economists in Australia and the Central Bank itself, inflation is expected to continue rising before years end–and even further into 2023 before declining back to the target range (between 2-3%) by approximately 2024.

Inflation Rate by End of 2022

The CPI’s steep increase this year is set to continue further, with the Reserve Bank of Australia anticipating headline inflation to peak around 7.75% by the end of 2022.

Australia’s Inflation Rate in 2023

Next year should mark the beginning of an interest rate decline, the Treasury expects. In a statement from July, Chalmers said it’s expected that inflation will track down to 5.5% by mid-2023, and should fall to 3.5% by the end of 2023.