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Underlying inflation rises above RBA’s forecasts

 — 1 minute read

The latest inflation figures from the ABS have significantly exceeded predictions.

The Australian Bureau of Statistics has reported headline inflation of 3.5 per cent and underlying inflation of 2.6 per cent over the year to the end of December 2021.

The underlying trimmed mean measure of inflation now sits just above the midpoint of the Reserve Bank’s target range of 2 to 3 per cent following a rise to 2.1 per cent reported in October's figures.

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“Annual trimmed mean inflation is the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods,” said ABS head of prices statistics Michelle Marquardt.

Forecasts released by the RBA in November predicted underlying inflation would reach 2.25 per cent for the year and would remain at that level until mid-2023.

The first interest rate decision of the year is set to be handed down by the central bank next Tuesday.

Economists from ANZ previously highlighted the need for the RBA to revise its inflation outlook and shift its forward guidance.

“Some of the inflation being observed is likely to subside, namely on the tradable goods side where the friction in global supply chains is clearly having an impact,” they noted.

“But the much higher starting point for inflation means the RBA will almost certainly need to adjust its forward guidance to acknowledge a rate hike is possible this year.”

Meanwhile, the ABS said headline inflation rose by 1.3 per cent in the December quarter on the back of a 4.2 per cent rise in new dwelling prices and a 6.6 per cent rise for petrol prices.

“Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses and apartments,” Ms Marquardt said.

“Fuel prices rose again in the December quarter, resulting in a record level for the CPI's automotive fuel series for the second consecutive quarter.”

The 4.8 per cent rise for domestic holiday travel and accommodation during the quarter also contributed to higher inflation as demand increased and restrictions were eased.

Annual price inflation of goods reached 4.3 per cent, the highest level since 2008.

“Fuel prices were the largest contributor to higher goods inflation,” said Ms Marquardt.

“More broadly, global supply chain disruptions and material shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods including dwelling construction materials, motor vehicles, furniture and audio-visual equipment.”

Underlying inflation rises above RBA’s forecasts

The latest inflation figures from the ABS have significantly exceeded predictions.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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