Quarterly inflation inches up
Official data released today by the ABS showed a 1.2% increase over the September quarter in Australia’s Consumer Price Index (CPI), up from 0.8% in the June quarter – a higher quarterly increase than most market expectations.
This takes annual inflation in the year to September to 5.4%, down from 6.0% in the year to June. But this rise in quarterly inflation (the first since the December quarter of 2022) shows that the path for price growth in Australia is still unpredictable, particularly when it comes to volatile items.
Chart: Quarterly and annual inflation, Australia
Source: Australian Bureau of Statistics, Consumer Price Index.
The most significant contributors to the quarterly increase were automotive fuel (+7.2% over the quarter), rents (+2.2%), new dwellings purchased by owner occupiers (+1.3%), and electricity (+4.2%). While there were offsetting price falls in some areas, like childcare, vegetables and domestic holiday travel, these were not enough to combat the spike in fuel and housing.
Notably, this was the first quarter of increase for automotive fuel, after two quarters of price fall this year. Housing costs overall were 2.2% higher over the quarter and 7.0% higher over the year, reflecting continued rental price growth and electricity price passthroughs from the annual wholesale mid-year price review. This was despite a range of offsets, like increases to Commonwealth Rent Assistance and the Energy Bill Relief Fund rebates.
While the annual rate of inflation continues to trend down, and domestic demand has already been squashed by previous rate rises, the September result will be of concern to the RBA. After leaving rates on hold at the last four meetings, the RBA’s new line in the October Board Minutes that “the Board has a low tolerance for a slower return of inflation to target than currently expected” indicated that CPI outcomes would be a major factor in their November decision and there would be little leeway for an upside quarterly result (which we’ve now seen). Financial markets are now expecting a rate rise next week.
Deloitte Access Economics continues to encourage some caution here. The oil price lift maybe temporary and so does not necessarily represent ingrained inflation. Meanwhile, with domestic demand already hard hit, and some of the transmission from previous rate rises still to come through, it may be prudent to wait a little longer rather than pulling the rates trigger.
High inflation and interest rates have hurt consumers, causing consumer sentiment to remain low and likely explaining the recent uptick in shoplifting. In June 2023, Australian Consumer and Retail Studies (ACRS), which operates out of Monash Business School, surveyed 1,000 consumers across Australia about cost of living and consumer deviance. Unsurprisingly, consumers are generally pessimistic about their personal finances, with 50% reporting being financially worse off compared to a year ago (and 57% of 35–54-year-olds). As part of the ACRS survey, consumers were asked how justifiable deviant behaviours were. Concerningly for retailers, over a quarter (28%) of consumers believe shoplifting is a little to completely justifiable.
There was a clear generational divide on this question, with only 7% of older consumers (aged 55 or older) believing it was justifiable, compared to 53% of younger consumers (aged 18-34). Even more consumers believe manipulating deals and promotions to be okay. 67% of consumers surveyed believed that claiming a competing retailer has a better price in order to get a discount was a little to completely justifiable. Another dimension to the difficult environment being seen for many consumers.
This blog was co-authored by Nathan Savundra-Shepherd, Research Assistant at Deloitte Access Economics.
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