Inflation in the year to June came in at 6.1%, the highest level in 21 years, since the GST was introduced.
Key Points:
- The consumer price index rose 6.1% in the year to June, the highest since June 2001 after the introduction of GST.
- Home building, furniture and fuel contributed the most to the cost of living increase in the June quarter
- Food and drink prices rose 5.9% over the past year, with fruit and vegetables up 7.3%
The 10 percent tax on most goods and services, introduced on July 1, 2000, fueled the highest annual inflation, peaking at 6.1 percent in June 2001.
Without the impact of this tax, you have to go all the way back to December 1990 to find a steeper annual level of consumer price increases: inflation was 6.9 percent the year before the “recession that we had to have.”
The Australian Bureau of Statistics (ABS) Consumer Price Index shows prices rose by 1.8% in the June quarter alone.
However, it was slightly below the 2.1% inflation rate in the March quarter.
The ABS measure of inflation is at its highest level since the introduction of the 10% GST pushed prices up in 2000/2001. (Supplied by: ABS)
Economists warn that inflation may not have peaked yet, but it may be approaching a peak and may not reach the levels already seen in the US or UK.
“The recent drop in crude oil suggests that auto fuel inflation will decelerate sharply in the coming quarters,” noted Marcel Thieliant of Capital Economics.
“And the fall in global food prices suggests that food inflation will peak before long.
“It’s true, with wholesale gas prices and wholesale electricity prices around five times the 2021 average, utility inflation will rise.”
That could provide some respite for mortgage borrowers struggling with rapidly rising interest rates.
“While [annual] inflation accelerated in the second quarter, the increase was not as strong as we expected, suggesting the RBA may opt for another 50 basis point rate hike at next week’s meeting rather than rise of 75 basis points that” re forecast,” Thieliant said.
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Following recent pleas from the Prime Minister for the Reserve Bank not to “overreach” by raising interest rates too aggressively, Treasurer Jim Chalmers pointed to the severe financial pressure many households were already feeling.
“For every dollar that people find to service their mortgages, every extra dollar, that means a dollar that can’t be used to finance the skyrocketing costs of other essential products,” he told reporters.
“A lot of people are living paycheck to paycheck for whom this inflation will be devastating, because it’s becoming harder and harder for them to replace things in their family budgets.”
He also referenced an International Monetary Fund report overnight that painted a gloomy picture of the global economic outlook.
“The global economy is walking down a precarious and dangerous path,” Chalmers added.
“You can see that in the pretty substantial downgrades that the IMF has released overnight.”
Space for play or pause, M for mute, left and right arrows for search, up and down arrows for volume. The Treasurer offers a grim economic outlook as the rate of inflation climbs to its peak
Opposition Treasury spokesman Angus Taylor said the government urgently needed to come up with a package to help with cost-of-living pressures.
“We recognize that this is a difficult global economic context, there’s no doubt about that,” he said.
“But the government’s challenge is to meet the challenges that are presented to you.”
Space for play or pause, M for mute, left and right arrows for search, up and down arrows for volume. Shadow treasurer calls on government to act ‘urgently’ on rising inflation
Which prices went up the most?
The ABS said the most significant price rises in the quarter were for new home purchases (+5.6%), fuel (+4.2%) and furniture (+7%) .
“Materials and labor shortages, high transportation costs and high levels of construction activity continued to contribute to the increase in new construction home prices,” said the chief price statistician of the ABS, Michelle Marquardt.
“Fewer grant payments made this quarter from the federal government’s HomeBuilder program and similar state homebuilding programs also contributed to the increase.
“The CPI auto fuel series hit a record level for the fourth consecutive quarter. Fuel prices rose strongly in May and June, after falling in April due to the cut in “excise tax on fuels”.
The increase in food and grocery prices that many households have felt was also seen in the figures.
Overall, the price of food and non-alcoholic drinks rose 2 per cent in the quarter and 5.9 per cent in the year to June.
Some of the biggest increases over the past year were a 7.9% increase for non-alcoholic beverages, a 7.3% increase for fruit and vegetables, a 6.3% increase for meat and seafood, a 6.3% increase in the cost of bread and cereals and a 5.2% increase in dairy retail prices.
One of the biggest jumps in grocery prices, however, was that of consumable products for the home, such as detergents or toilet paper.
Price increases were much more modest for most services, with health care costs rising just 2.4 percent over the past year, insurance and financial services up 3.4 percent and costs of stable communications.
Government intervention led to a fall in prices for some services during the quarter, with childcare down 7.3% as the full effect of additional child benefits took effect.
Urban transport fares fell by 4.4% due to free travel periods in New South Wales and Tasmania.
Essential goods drive most of the inflation
The increase in the price of goods accounted for 79 per cent of inflation in the June quarter, according to the ABS.
Angela Jackson of Impact Economics said the relative weakness in services sector inflation was good news as it showed that most of the inflationary pressures were still coming from abroad.
“Typically over the last few years we see that inflation is generally generated in the services sector, and when we see inflation coming from the services sector, that’s when we know that it’s embedded in terms of wages and service delivery,” he said. ABC news channel.
“The fact that it is coming from goods is good news, as much of it has been imported from overseas due to supply blockages.
“If the international factors work themselves out, this will reduce much of the price pressure without the Reserve Bank having to raise rates [more aggressively].”
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However, while this means price increases in Australia do not yet appear to be out of control, Dr Jackson said they were focusing on the things most households needed to buy.
Prices of non-discretionary goods and services rose 7.6 percent, while prices of discretionary items we can do without rose 4 percent.