Australia’s cost of living crisis has been laid bare in new inflation figures described by the Treasurer as “confronting”.
The annual inflation rate rose to 6.1% in the year to June, the highest level in more than two decades.
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It illustrates a fact many Australians know all too well: that the cost of almost everything is rising.
ABS head of price statistics Michelle Marquardt said a 1.8 per cent rise in the June quarter was the second-highest quarterly rise since the introduction of the GST, second only to the report from three months earlier.
“The biggest contributors to the CPI increase in the June quarter were new homes (+5.6%) and motor fuel (+4.2%),” he said.
“Materials and labor shortages, high transportation costs, and high levels of construction activity continued to contribute to rising new construction home prices.
“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 automotive fuel series reached 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 duty on fuel.”
Australians were also paying more at the supermarket checkout, figures reveal. Credit: AAP
Australians were also paying more at the supermarket checkout, figures reveal.
In the June quarter, a head of lettuce was reported to cost as much as $10, as a result of supply shortages due to flooding in New South Wales and Queensland.
The cost of vegetables increased by 7.3%, takeaway meals by 1.4% and fruit by 3.7%.
“Supply chain disruptions due to flood events, labor shortages and increased transport costs all contributed to higher prices,” the ABS said.
Average trimmed annual inflation, which excludes big price rises and falls, rose to 4.9%, the highest since the ABS first published the series in 2003.
Treasurer Dr Jim Chalmers said the figures were “not news” to many Australians.
“It’s not news to millions of Australians who feel the challenge of inflation, every time they go to the supermarket and every time the bills arrive,” he said.
“This inflation result today reflects the lived experience of Australians who are struggling right now.”
He said inflation is likely to pick up again in the next quarter.
“These are stark numbers for the cost of living pressures being felt by Australians in every corner of the country.
“Inflation is high and rising, it’s getting tougher before it gets easier. The reality is that the quarterly result still doesn’t include the electricity price hike that happened in July.”
Chalmers is preparing for an economic statement to parliament on Thursday, ahead of the October budget.
It will include updates on inflation, wages, unemployment, economic growth and other key data.
He said inflation would be revised up “substantially” with growth revised down, as well as pointing to a short-term lag in wages.
“I think the idea of forecasting wage growth that will keep pace with (rising inflation) would not be credible in the short term,” he said.
Economists expect the increase to prompt the Reserve Bank of Australia (RBA) to raise its cash rate for a fourth consecutive month when the board meets next Tuesday.
The rate of inflation, also known as the consumer price index (CPI), is reported by the ABS every quarter.
It is calculated based on the price change of thousands of household items and expenses over a three-month period.
In the following video: What is inflation and how do we recover it?
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The ABS collects the prices of around 100,000 different items, including groceries and petrol, and averages how much more they cost compared to the same time three months earlier.
For everyday Australians, it only confirms what is already known: that the cost of living is rising.
But AMP chief economist Shane Oliver said the importance of inflation can also be seen in its consequences.
“If you tell people the cost of living has gone up by 6 per cent, they’ll say ‘tell me something new,'” he told 7NEWS.com.au before releasing the figures.
“It is more significant in terms of the flow of effects. It’s telling us what we already know: that the cost of living is rising at a faster rate than most people’s wages.
“But I guess the biggest flow-on effect is the impact for about a third of Australians who have a mortgage.”
Watch the video below: Interest rates and inflation explained
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The RBA board considers the rate of inflation when making its monthly call to raise interest rates.
After the war in Ukraine, and the subsequent pressure it put on household budgets, the RBA raised interest rates from an all-time low of 0.1.
After three consecutive increases, the cash rate stands at 1.35 percent.
Oliver says the RBA’s response would likely be proportional to the rate of inflation.
“If it’s around 6.2 or 6.3 (per cent) … then I suspect the RBA will go ahead with a 0.5% interest rate hike next week,” Oliver said before publishing the figures.
“Alternatively, if it is substantially higher, say 6.5 or more, the risk is that the RBA will increase the pace of rate hikes and increase by 0.75 per cent.
“And then we would hear more about significant moves in interest rates.”
RBA Governor Philip Lowe says community expectations of inflation may affect the pace of rate rises Credit: AAP
RBA Governor Philip Lowe earlier forecast that inflation was expected to rise to 7 per cent before the end of the year.
“Inflation in Australia is also high, but not as high as in many other countries,” Lowe said earlier this month after raising interest rates by 50 basis points.
“Global factors account for much of the rise in inflation in Australia, but domestic factors also play a role.
“Strong demand, a tight labor market and capacity constraints in some sectors are contributing to upward pressure on prices. The flooding is also affecting some prices.”
– With AAP
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