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And that’s a (data) wrap

While inflation was higher than expected, other parts of the economy are still slowing.

It’s been a busy few weeks for economic data releases. The much-anticipated inflation update came out last week, employment numbers the week before, and retail data just this morning. All are key data points that the RBA will be carefully considering at next week’s Board meeting.

Most talked about were the latest inflation numbers.

The biggest drivers of inflation over the quarter were rents (+2.1%), secondary education (+6.1%), tertiary education (+6.5%) and medical and hospital services (+2.3%). The release has emphasised that there are, indeed, some worryingly sticky components of inflation that the RBA will be keeping an eye on – particularly for non-discretionary inflation (+4.2% over the year compared to +2.9% for discretionary) and services inflation (+4.3%). Rents are up 7.8% over the year and this is a problem that doesn’t appear to be going away anytime soon given low vacancy rates and weak building activity. 

Chart 1: Annual change in CPI, by analytical series

Source: ABS Consumer Price Index. 

However, despite all the alarm bells from the market, these numbers still affirm that inflation is ticking down – albeit more slowly than everyone would like. And some of the biggest price rises this quarter reflected once-a-year adjustments rather than ongoing price rises (like for education fees at the beginning of the calendar year, and the re-set of the Medicare and Pharmaceutical Benefit Scheme Safety Net thresholds). 

Today’s retail trade data confirms that consumers continue to hold back from spending as cost of living pressures persist. Retail trade fell 0.4% over March, meaning March quarter nominal retail trade rose only 0.2%, with turnover falling in every category except food retailing. This reflects another flat quarter of growth and comes despite more significant moderation in retail price growth than other parts of the economy, indicating that even discounts haven’t been enough to get consumers back out and about. 

The March employment data spotlighted one area of economic resilience – the labour market. The unemployment rate remained at 3.9% in March, still well below the 10-year pre-COVID average of 5.5%. The participation rate fell slightly to 66.6%, but remains close to record highs from November 2023, while the underemployment rate (which captures those who are employed but want to work more hours) remained at 6.6%. This labour market resilience is expected to fade over the coming months, in line with rising business insolvencies, weaker forward employment intentions and job vacancies, and lower business sentiment.

All in all, the RBA will have more than a few data points to carefully pick through before next week’s board meeting. While higher than expected inflation will be front of mind, so too should be signals – like today’s retail data and rising business insolvencies – that the economy is slowing.

This newsletter was distributed on 30th April 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Michelle Shi, Senior Economist at Deloitte Access Economics

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