Soaring CPI has RBA ready to fire interest rate missile

As reported earlier, Australia’s Consumer Price Index (CPI) came in white hot at 2.1% in the March quarter – smashing market expectations of a 1.7% rise:

Quarterly CPI

Annual CPI soared by 5.1%, beating expectations of a 4.6% rise:

Annual CPI

It was the largest quarterly and annual rise in CPI since the GST was introduced in 2000.

Looking at the major components, you can see that the rise in quarterly inflation was driven by Education, Transport (petrol prices), Food & Beverages and Housing (new dwellings and rents):

Quarterly CPI by component

Over the year, Transport (petrol prices) also drove the inflation, with Housing, Furnishings and Health also posting strong rises:

Annual CPI by component

The most important part of this release is actually the ABS’ ‘analytical series’, which provides alternative measures of underlying inflation in the economy. These measures – namely the trimmed mean and weighted median – aim not to measure the size of inflation (which is captured by the headline figure), but the breadth of price inflation across the basket of consumer goods and services.

The purpose of these underlying measures is to exclude unusually large price movements (in both directions) of just a few of the subgroups, which may have quite an impact on the headline CPI. By excluding these outliers, you can get a feel for how widespread across the consumer basket inflation really is.

It is this underlying inflation that the RBA watches most closely in setting interest rates.

According to the ABS, the trimmed mean and weighted median measures came in below the headline result at 1.4% and 1.0% respectively over the March quarter – the highest level since September 2008:

Quarterly underlying inflation

Over the year, the trimmed mean and weighted median rose by 3.7% and 3.2% respectively – the highest level since 2009:

Annual underlying inflation

The only thing stopping the RBA from lifting the official cash rate (OCR) is Australian wages, which grew by only 2.3% in 2021.

The March quarter wage price index will be released on 18 May, and if it comes in solid, the RBA will likely lift the OCR at the June meeting (probably by 0.40%).

The days of record low interest rates are numbered.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. TailorTrashMEMBER

    It’s funny that house prices are excluded from the inflation numbers …….but it is houses prices ( and their attendant mega mortgages ) that will hurt people the most when they administer the inflation medicine ( interest rate rises )

    • happy valleyMEMBER

      Existing house prices are excluded and have been since the early 2000s, because Howard, Straya’s second worst ever PM, stripped them out of the CPI measure then. If they had been included, inflation would running at 10 – 15+% pa.

      • kannigetMEMBER

        The mortgage payment part is still in the CPI. This has the perverse effect of reducing inflation when you reduce rates and increase inflation when you increase rates….

  2. Goldstandard1MEMBER

    My tip – they now have a green light for 0.15% next week, then 0.25% after election. This will be enough for the over leveraged and people who gambled too much to change the alert bulb colour from orange to red and possibly brown.

    The can has been kicked so far that right when we should be lowering rates, we are in fact increasing them.

  3. Goldstandard1MEMBER

    Mostly the first one, based on triangulation of commentary. An educated guess.

    • Goldstandard1MEMBER

      Not sure I’ve seen Terry ever get one right, he’s more the foghorn for the RBA to masses so wouldn’t surprise me if he says 50, then ppl are relieved with 15. That bakes it in for me.

      It’s called ‘buttering the shyte sandwich’!

      • Prime Minister Scott Morrison has given the Reserve Bank cover to raise interest rates next week, saying despite the election campaign, it was appropriate for its decision to be independent of politics.

        • Goldstandard1MEMBER

          HOLY SHYTE THINGS ARE THAT BAD. People should probably be afraid now, LIBs not even trying to influence and have capitulated. I also heard him say that it’s a good result vs. USA at over 8%! Not like our prime minister to hold to high standards!

          I expect to see Bnich again after first rate rise. He was sick of telling the same story and tapped out until it actually started. It’s starting.

          • One of the truly disappointing things of 2022 has been the non-reappearance of the Sun God.

  4. Good thing all those mortgages have been well and truly stress tested and therefore any rise in rates of up to 2% should be no problem to swallow.

    • This might actually be true. But if it is, the amount of money that will pulled from the economy in order to service this 2% will roast the economy in such a way that all those people will lose their jobs anyway. Therefore, not be able to serivce the extra 2%.