Inflation in Australia up 3 Percent on the Back of Fuel and Housing Price Rises

Inflation in Australia up 3 Percent on the Back of Fuel and Housing Price Rises
Tradesmen can be seen working on the roof of a house under construction at a housing development located in the western Sydney suburb of Oran Park in Australia on Oct. 21, 2017. (David Gray/Reuters)
Rebecca Zhu
10/27/2021
Updated:
10/27/2021

The Australian Bureau of Statistics (ABS) revealed that the consumer price index (CPI) rose 0.8 percent in the September quarter, in line with economists’ expectations, and 3 percent annually.

The quarterly increase was driven by the rising fuel costs (7.1 percent) and housing construction (3.3 percent).

“Construction input costs such as timber increased due to supply disruptions and shortages. Combined with high levels of building activity, this saw price increases passed through to consumers,” ABS head of price statistics Michelle Marquardt said.

“Rising fuel prices also contributed to the September quarter CPI increase, with the CPI’s automotive fuel series reaching the highest level in its half-century history.”

The ongoing global supply crunch also pushed up prices for furniture (3.8 percent) and motor vehicles (1.4 percent).

The most significant price fall was for fruit (8.3 percent) due to reduced demand from the food industry and the favourable growing conditions that have farmers enjoying a record crop season. Clothing prices also fell (5.5 percent) after winter stock accumulated as people stayed home during lockdowns.

Westpac senior economist Justin Smirk noted that the September quarter CPI was under the influence of government support.

Smirk said that as the economy reopens, it will be able to see price adjustments as there are global supply chain disruptions and local labour shortages.

“We are currently looking for core inflation to peak at just under 3 percent in late-2022 before easing back through 2023, and thus will be looking for signs in the September quarter CPI that we have to adjust our thinking,” Smirk said.

While economists anticipated the CPI figures, the annual rise in underlying inflation at 2.1 percent came as a surprise, revealed to be 0.2 percent higher than expectations. This was the strongest annual increase since 2015.

“The surprise in trimmed mean inflation was driven by stronger than expected non-tradable inflation, where there was surprising strength in a range of services like insurance and restaurant meals,” ANZ economist Hayden Dimes said.

Dimes said these latest figures might put pressure on the Reserve Bank of Australia (RBA) to rethink its forward guidance for the cash rate, as trimmed mean inflation is the measure that the central bank focuses on.

“[But] we think the RBA’s outlook for inflation in 2023 will continue to be driven by its expectations for wages,” Dimes said. “And we don’t think the RBA is likely to change its view on wages growth all that much.”