Inflation in Australia has decreased for the first time since November, with the latest figures from the Australian Bureau of Statistics (ABS) showing a consumer price index drop to 3.7% for the year ending February, down from 3.8% in January and marginally lower than economists had predicted. The trimmed mean, a key measure of underlying inflation favoured by the Reserve Bank of Australia (RBA), remained steady at 3.3%.
However, this data only reflects conditions up to February and does not account for inflationary pressures resulting from soaring oil prices and the ongoing war in Iran. Analysts at Canstar anticipate that inflation may rise above 5% in coming months, prompting the RBA to consider another interest rate increase during its next meeting in May.
Sally Tindall, Canstar’s director of data insights, warned of the potential for a spike in inflation, particularly as the repercussions of Middle Eastern conflicts could significantly impact the upcoming inflation figures. Another interest rate hike could see cash rates reach levels not experienced since November 2011, which would subsequently increase monthly repayments for borrowers by an estimated 7.4%. Elevated costs for petrol, groceries, and services are also anticipated.
Recent ABS data indicated that fuel prices fell by 7.2% compared to last February. Nevertheless, since then, fuel prices have surged to record highs, with unleaded petrol nearing $3 per litre in some regions. Housing costs have been the primary driver of inflation over the past year, with energy prices soaring by 37% following the cessation of government rebates. Food prices also rose, increasing by 3.1%, with significant hikes in meal and takeaway prices.
The RBA’s monetary policy board will reconvene in early May; by then, another round of inflation data will be available. RBA Governor Michele Bullock hinted at the possibility of further rate increases should inflation persist.
Treasurer Jim Chalmers recently indicated that inflation could reach 5.5% if global oil prices rise to $US120 per barrel, while a more moderate scenario might push inflation to the high 4% range if prices hit $US100. He noted that forecasts may need adjustment based on the resolution of the ongoing conflict and the global economic recovery.
Chalmers also cautioned that the economic fallout from the current conflict could parallel the impacts of the 2007 financial crisis or the COVID-19 pandemic. Westpac and the Commonwealth Bank project inflation could exceed 5% under escalating conflict conditions and further increases in oil prices.
In summary, while there has been a slight easing in inflation, the outlook suggests upcoming pressures that could lead to significant price increases and further interest rate hikes.