The consumer price index (CPI) rose by 1.8 per cent during the June quarter, taking the annual rate of inflation to its highest level since the introduction of GST at 6.1 per cent.
According to data released by the Australian Bureau of Statistics (ABS) on Wednesday, new dwellings and automotive fuel were the biggest contributors to the quarterly rise, which was the second highest since GST was introduced in 2000 after the 2.1 per cent increase seen in the March quarter.
“Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings,” said ABS head of prices statistics Michelle Marquardt.
“Fewer grant payments made this quarter from the Federal Government’s HomeBuilder program and similar state-based housing construction programs also contributed to the rise.”
The ABS said that the most significant price rises during the quarter were new dwelling purchases by owner-occupiers (+5.6 per cent), automotive fuel (+4.2 per cent) and furniture (+7.0 per cent).
Annual price inflation for new dwellings (+20.3 per cent) was the strongest recorded since the ABS series began in 1999, while automotive fuel (+32.1 per cent) also contributed significantly to the annual headline inflation figure.
Meanwhile, the underlying trimmed mean measure of inflation climbed by 1.5 per cent over the quarter and 4.9 per cent over the past year.
“Annual trimmed mean inflation was the highest since the series commenced in 2003 and annual goods inflation was the highest since 1987, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy,” said Ms Marquardt.
While the Reserve Bank (RBA) predicted in its most recent statement on monetary policy that CPI would peak at 6 per cent by the end of the year, RBA governor Philip Lowe warned last month that inflation could rise as high as 7 per cent during the fourth quarter.
“This upward revision has in large part been the basis for the RBA hiking rates in 50-bp increments over the past two months, rather than moving in ‘business as usual’ 25-bp steps as they did in May,” said Commonwealth Bank head of Australian economics Gareth Aird.
To address the inflation challenge, all four major banks have predicted that the central bank will deliver a third 50-bp hike at its August meeting next week, with ANZ and Westpac both now seeing the cash rate peaking at 3.35 per cent in the coming months.
“Just as the board over-stimulated the economy in the face of the COVID threat, so it will be prepared to tighten to address what it perceives as the greater risk — losing control of inflation expectations at this time of rising inflation and very tight labour markets rather than fine tuning the economic downturn,” Westpac chief economist Bill Evans said last week.
