Annual inflation balloons to 30-year high

That’s “the fourth consecutive quarter to show a rise greater than any seen since the introduction of the goods and services tax (GST) in 2000,” according to ABS head of price statistics Michelle Marquardt.

Primary contributions to December’s rocketing inflation were increases to domestic holiday travel and accommodation (13.3 per cent), electricity (8.6 per cent), and international holiday travel and accommodation (7.6 per cent). 

Moreover, new dwelling prices grew 1.7 per cent, a rate slower than previous quarters yet higher than historic norms.

“Labour and material costs are driving price growth in this area, with signs of material cost pressures easing,” Ms Marquardt said. 

“Slowing demand for new dwelling construction was reflected in a lower quarterly rate of inflation for new dwellings this quarter compared with the past five quarters.” 

Annually, the CPI rose 7.8 per cent, the highest yearly increase since the dawn of the 1990s, led by increased prices of new dwellings (up 17.8 per cent), domestic holiday travel and accommodation (19.8 per cent), and automotive fuel (13.2 per cent).

The ABS’ latest figures hit close to the Reserve Bank of Australia’s forecast that inflation would peak at 8 per cent over the year.

Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI. For the third consecutive quarter, annual trimmed mean inflation was the highest since the metric began in 2003, increasing to 6.9 per cent last quarter from 6.1 per cent in the three months preceding September. 

CoreLogic head of research Eliza Owen expressed her belief that “the worst of inflation could still be behind us.”

“Inflation across the combined OECD slowed to 1.8 per cent in the September 2022 quarter, after peaking at 2.1 per cent through June,” Ms Owen said. 

She added that in Australia, multiple housing market metrics indicate the rate of growth in new build costs and rents is easing, “while falling property prices and volume of sales are taking heat [off] the economy indirectly”.

Given the housing component holds the highest weighting of any sub-group, Ms Owen said that “a slower rate of growth in housing costs is a key factor that should support a further reduction in both core and headline inflation”. 

Despite December’s CPI data highlighting housing costs rose 1.9 per cent in the quarter, this remains below the 3.2 per cent lift recorded in the three preceding months to September last year.

Demand for household goods eased last quarter, with Ms Owen indicating lower home sales may equate to decreased demand for appliances and furnishings. 

New dwelling approvals and commencements have also dropped off in line with rising interest rates. This has the potential to take pressure off the construction sector and the cost of new home builds.

Ms Owen also explained: “Growth in CoreLogic rent valuations, a leading indicator of CPI rents, also showed an easing trend in the December quarter. Growth in capital city rent valuations slowed to 2.3 per cent in the December quarter of 2022.

“This was down from 2.7 per cent in the previous quarter, and a recent peak of 3 per cent in the three months to June.” 

Ms Owen concluded: “Given the slightly stronger than expected headline inflation result for December, along with the fact that core inflation remains well outside the RBA’s target range, a further increase in interest rates seems likely for February, and possibly March.”