Aussie inflation smashes expectations

The ABS has just released CPI data for the December quarter, with headline inflation rising by 1.3% over the quarter and by 3.5% year-on-year:

The result surprised on the upside, beating analysts’ expectations of a 1.0% quarterly rise and 3.0% inflation over the year.

Of more importance, core (underlying) inflation rose by 1.0% over the quarter and 2.7% year-on-year:

This also beat analysts’ expectations of 0.7% QoQ and 2.4% YoY inflation.

According to the Head of Prices Statistics at the ABS, Michelle Marquardt:

The most significant price rises in the December quarter were new dwellings (+4.2 per cent) and automotive fuel (+6.6 per cent).

“Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses and apartments.” Ms Marquardt said.

“Fuel prices rose again in the December quarter, resulting in a record level for the CPI’s automotive fuel series for the second consecutive quarter.”

Domestic holiday travel and accommodation (+4.8 per cent) also contributed to the December quarter CPI increase, reflecting increased demand due to the easing of domestic border restrictions in late October and the lead up to the Christmas holiday period.

Annually the CPI rose 3.5 per cent, with automotive fuel (+32.3 per cent) the most significant contributor. Prices of goods rose 4.3 per cent through the year, while those of services rose 2.3 per cent.

“Annual price inflation of goods surpassed that of services in the December quarter and was the highest since 2008.” Ms Marquardt said.

“Fuel prices were the largest contributor to higher goods inflation. More broadly, global supply chain disruptions and material shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods including dwelling construction materials, motor vehicles, furniture and audio-visual equipment.”

Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI. Annual trimmed mean inflation increased to 2.6 per cent, up from 2.1 per cent in the September quarter. Ms Marquardt said: “Annual trimmed mean inflation is the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods.”

The RBA is obviously more likely to bring forward its interest rate guidance on the back of this data.

I’ll be back later with my usual detailed report.

Unconventional Economist
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Comments

    • Billions upon billions percent – but we don’t care about that since uh… about the last time we had housing cost included in the CPI!

      Just watch RBA coming up with “it’s temporary, and we’re looking through it”!

    • Fabian AlderseyMEMBER

      Should be straightforward enough to do. The ABS publishes the Residential Property Price Indexes. Just a matter of weighting expenditure on established housing vs other items (for the average Australian), then applying that weighting to combine the indexes.

  1. I still dont get why “automotive fuel” is even included that much in the CPI, it s mostly independent of the state of the economy.

    • they don’t measure what they can / cannot do somethign about. They measure what has a meaningful impact into personal and commercial costs (living and operating respectively). Apart from the cost of houses, but that is an entirely different numberwang thing altogether.

      Where / who told you that they only measure what they can influence ?

        • Fabian AlderseyMEMBER

          Everyone has access to all the lower level indexes. Easy to remove automotive fuel, if the person using the data wants to do this.

      • Q is right here.

        The CPI basket, under Friedman-esque lunacy is that if consumer prices increase too high, it is a symptom of too high wages being paid, that the punter with too much spare cash is bidding up prices out of reason. Thus to curb it, hit them in the hip pocket by making their debt servicing higher, leaving them less discretionary income.

        Combine this with NAIRU, with the the marginally unproductive are bidding in excess of the productive output, and you’ve got the whole system… which is why housing is excluded. The theory being the bind price of capital is isolated from the yield (being the consumer side)… either being the speculators can cop it… or they’re completely informed thus the capital value is never out of whack.

        This is lunacy, the price given to the consumer for automative fuel doesn’t rise because “yeah, I’ve got plenty of fiddies in my pocket, I’m going to buy from BP because I enjoy paying 8c a litre more”….

        This is a exogenous factor, if anything higher fuel prices are a drag on consumer spending power, and should be counted as a negative as an influence to CPI adjusted interest rates…. the punter doesn’t need a double whammy of fuel and interest rates being their consumption drag.

          • This isn’t about you, stop being so narcissistic.

            At all times, there is debt. The impact if higher interest rates dampens the upward trend of price instability, by way incentivising bonds, or slowing monetary velocity.

            I’m saying the punter spending more on fuel isn’t a sign their spending needs to be curbed, due to it being an inelastic import, it’s probably curbing spending enough in its own right.

          • No, not about me at all?
            Well, I have substantial savings (like many other folks) and I don’t believe I should be subsidizing your debt repayments.
            Only about third of the population has a mortgage.
            So, it’s about you as much as it is about me.
            Except I don’t expect anyone to look after me.

          • Jumping jack flash

            Very lucky Mr. Tezza. I wish I had no debt either, but I made my choice and now I must accept it.

            I assume you have a job though?

            Does your employment manufacture items to sell to the world for profit?
            If it does then you are very, very lucky. If not then, sadly, you depend on debt spending and the price of debt will affect that.

            The price of debt will affect anyone and everyone who relies on providing services and/or the retail of imported goods (plus a markup) to generate revenue to use to pay wages. It is all debt spending. There’s not much else in this country.

          • You’re talking about the retail price of debt, which is a premium added to the cash rate.

            Your conflating two separate things,

            Arabs and Russians turning the tap off oil, isn’t a pay day for people sticking money in a term deposit.

          • You’re right: it’s not a pay day and there won’t be any for me.
            Instead, those who have borrowed $$$ and gambled it all on ever increasing house prices get rewarded.
            Good on you. Now, that’s a pay day!

          • You’re right: it’s not a pay day and there won’t be any for me.
            Instead, those who have borrowed $$$ and gambled it all on ever increasing house prices get rewarded.
            Good on you. Now, that’s a pay day!

            I agree…. you borrow cash at an artificially low rate , to put it in an asset which has policy measures to generate an extraordinary rate of return… that is a crooked game….

            However, this is asset price inflation…. it is a different measure to Consumer Price inflation. This ultimately awards those who sell the asset (property) before the inflation hits, it’s its theoretical response is a prudential one, not adjusting the cash rate.

            So again, you’re conflating two different things.

            A CPI measure as a means to initiate a monetary response is;

            If there is an upward trend of (CPI) prices above the inflation target of 2-3%, this must be a result of too much money being paid out in wages, manifesting itself in excess demand above that of chain volumes.

            Hence, to dampen the nominal demand, take the punters money away in debt servicing, or provide an extra incentive to save.

            Higher fuel prices, all on their own accord, dampen demand… if this shows up in the CPI basket, and triggers a second dampening response, it is perverse.

            Asset price inflation comes about because the yield arbitrage between cash and the asset bought with cash is excessive.

            A saver is not being punished because someone else can afford petrol at $1.78 per litre.

          • I may well be conflating several issues, but you’re looking at a single issue (CPI calculation by the ABS) in isolation.
            The oil price is set on international markets (Tapis crude in this case) in US$.
            If the US interest rates are rising for whatever reason (inflation in this case), then we import that inflation, regardless
            of the petrol source, which could easily be from “Woodside Petroleum” in Timor sea.
            We can choose to ignore it (“look through”, the most likely scenario), raise the interest rates (unlikely), or,
            as, you seem to suggest, lower the interest rates/print more AU$, so the punters with debt can fill up the Landcruisers.
            The latter would probably make the AU$ sink faster than otherwise, yielding higher energy prices, thus defeating the purpose.
            Except for the savers, whose savings would be valued even less…

          • I may well be conflating several issues, but you’re looking at a single issue (CPI calculation by the ABS) in isolation.
            The oil price is set on international markets (Tapis crude in this case) in US$.

            No, I am entirely combining them together. The purchase price taken by the consumer is never a case of them receiving too high a pay in relation to chain volumes. In is implausible for people to ‘opt-out’ of consuming fuel and settle for an alternative, which is where consumption choice, vs bidding up limited supply shows up. They are price takers, hence increased fuel is a drag on the consumer, not a sign of excess consumption.

            If the US interest rates are rising for whatever reason (inflation in this case), then we import that inflation regardless

            Policy is whatever you want it to be. I wouldn’t move to adjust policy settings here, there inflation is too much money chasing too few good. It doesn’t have to be our wages/earnings chasing our product.

            of the petrol source, which could easily be from “Woodside Petroleum” in Timor sea.

            It’s fungible, traded on a global market and we import a majority of our fuel. It’s as foreign a commodity as foreign commodities get.

            We can choose to ignore it (“look through”, the most likely scenario), raise the interest rates (unlikely), or,
            as, you seem to suggest, lower the interest rates/print more AU$, so the punters with debt can fill up the Landcruisers.

            No, I wouldn’t suggest printing money to buy it at all. Now, if you want to have to proportional segment argument of “this x-% of people don’t have a mortgage”, does it apply to “y-% of people don’t own a landcruiser” ?

            The purchase pattern of cars over 3 decades now is of reduced fuel consumption, the consumer is making the choice to reduce consumption, and I would suggest they don’t need it in the CPI basket to add yet another economic drag (incentive ?? *chortle*). This is a real consumption adjustment, not just a hedonic adjustment

            The latter would probably make the AU$ sink faster than otherwise, yielding higher energy prices, thus defeating the purpose.

            I’m not asserting a dichotomy here. I’m asserting the price of fuel by itself has a (downward) consumption adjustment, without the need for it to exacerbate a CPI basket.

            Except for the savers, whose savings would be valued even less…

            if savers are looking at preserving the value of their savings, again, you need to look at Asset Price Inflation in this country. This is why segmented CPI has appeared in non-tradables for over 20 years.

            You are assigning blame (to those who have to pay $1.92 a litre for petrol) to those who are least worthy of blame.

  2. Jumping jack flash

    Fantastic news!
    I am surprised that we’re getting this inflation considering the ridiculous attempt at stimulus that Scomo failed badly at.
    What is the chance that this inflation is imported as a result of the US/global inflation?

    Regardless, inflation is certainly the first step to economic recovery in a debt economy like ours (and most of the world) that doesn’t actually produce anything and relies on providing services to each other and the markup on imported goods sold to each other to generate money to use to pay wages with, to use to obtain more debt to spend.

    The next step is….. to use all the wonderful [COVID] stimulus to pay for the inflation so demand doesn’t vanish as a result of the inflation. The stimulus spending fills the gap while wages readjust higher after stimulus and inflation is transformed into revenue that business owners can allocate to wage increases…

    Do we have any stimulus though?
    Without the stimulus we just get the higher prices and business closures, and probably higher interest rates to boot.

    Well, as they say about puddings and eating and all of that.

  3. Watch housing next. Clearance rates are about to be smashed. I’m in the market right now and buyer interest has evaporated on the fear of interest rate rises. New stock coming on at a rapid rate and buyers are keeping their wallets shut. Watch Domainfax start talking about a soft landing. It’s bullshit of course and all those bank economists talking of price growth this year will be rewriting their forecasts within weeks.