Headline CPI 2.1%qtr/5.1%yr; trimmed mean 1.4%qtr/3.7%yr, weighted median 1.0%qtr/3.0%yr. The 1.4% rise in core inflation captures the broad nature of the inflationary pulse with more than 60% of the components in the CPI now running at a greater than 2.5%yr pace.
Inflation came in 2.1%, well above the market forecast of 1.7% even exceeding Westpac’s top of the range forecast of 2.0%. This was the largest quarterly rise in the CPI since the introduction of the GST. At two decimal places it was 2.14 so rounded up or softer 2.1%.
The annual pace lifted from 3.5% to 5.1% the fastest pace of annual inflation since the introduction of the GST in 2000 and significantly faster than the June 2021 print of 3.8% which was a twelve year high. While the unwinding of the HomeBuilder grants continues to be part of the story behind the boost in inflation it is the shortages of building supplies and labour, heightened freight costs and ongoing strong demand also contributed to price rises for newly built dwellings as well as a broader inflationary pulse.
This broad spread inflationary pulse was captured by 1.4% gain in the trimmed mean, both the market and Westpac were expecting 1.2%, which the ABS reports as the largest quarterly rise since the beginning of the series in 2002. If we compare to the RBA historical estimates of the trimmed mean it is the largest quarterly rise since the 1.8% print in December 1990. The 1.4% gain has lifted the annual pace of core inflation to 3.7%ry, the fastest pace since a 4.1%yr print in March 2009. The ABS reports the lift in core inflation “reflected the broad-based nature of price rises, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy.”
This widespread nature of this inflationary pulse was further emphasised by the rise in the share of components of the CPI running faster than a 2.5%yr pace. The share lifted to 66% from 32% in March, the largest share of the CPI components running faster than 2.5%yr since December 2001 (post the introduction of GST).
At two decimal places the trimmed mean rose 1.37% so a hard 1.4%; for history the weighted median gained 1.0% for 3.2%yr.
The ABS reports that most significant price rises were for new dwelling purchase by owner-occupiers (5.7% vs 5.4% WBC), automotive fuel (11.0% vs 10.9% WBC) and tertiary education (6.3% vs. WBC 2.4%). Also worth noting were the strong gains in food (2.8% vs 2.1% WBC) along with the unseasonal rise in furniture & furnishings (1.1% vs -1.1% WBC) and communication (0.3% vs flat WBC)
The ABS provides more details on food noting that the increases reflected high transport, fertiliser, packaging and ingredient costs, as well as Covid-related disruptions and herd restocking due to favourable weather. Main contributors to the rise in food prices included vegetables (6.6% vs 8.7% WBC), waters, soft drinks & juices (5.6% vs 1.7% WBC), fruit (4.9% vs 3.9% WBC) and beef (7.6% vs 3.4% WBC).
Inflationary pressures in the food group was softened by voucher programs in Sydney and Melbourne, which reduced out of pocket costs for meals out & takeaway foods. The grocery component of the group, which excludes meals out and takeaway foods, rose 4.0%. Prices for other grocery items, such as non-durable household products which includes products such as toilet paper and paper towels, rose 6.7% in the March quarter.
The ABS reported that automotive fuel rose for the 7th consecutive quarter, resulting in the strongest annual rise since the Iraqi invasion of Kuwait in 1990. It was also a record level for auto fuel due to an oil price shock caused by the Russian invasion of Ukraine, paired with ongoing easing of Covid-19 restrictions strengthening global demand. The national quarterly average price for unleaded petrol was $1.83 per litre in the March quarter. The halving of the fuel excise in the recent budget will have will be a meaningful disinflationary force in the June quarter but this will be reversed when the excise is reinstated in the December quarter.
The ABS continues to report a two-speed rental market in Australia but as we expected Sydney and Melbourne shifted from negative to positive gains for rents. Rents across the remaining capital cities continue to record relatively stronger rises, reflecting historically low vacancy rates. The positive growth in rents for Sydney and Melbourne was mainly driven by rising rents for houses, while other dwellings recorded a relatively smaller rise in Sydney and a small fall in Melbourne. Rental conditions for other dwellings remained subdued in Melbourne reflecting higher vacancy rates. Rents for both houses and other dwellings increased at a similar rate in the remaining capital cities.
Non-discretionary annual inflation (6.6%yr) was higher than the CPI (5.1%yr) and more than twice the rate of discretionary inflation. (2.7%yr). Non-discretionary inflation includes goods and services that households are less likely to reduce their consumption of, such as food, automotive fuel, housing and health costs which have all experienced price rises through the year. In the quarter non-discretionary items 3% driven by housing, auto fuel and food.
We are processing this data and will review what implications it has for our CPI forecasts. But it is worth noting that the 5.1%yr pace in annual CPI inflation is already higher than our forecast peak of 4.9%yr. The 3.7%yr pace in core inflation (trimmed mean) is narrowing in on our forecast peak of 4.0%yr in the September quarter.
