Inflation rose 0.8% in the June 2023 quarter and 6% annually, according to the latest data from the Australian Bureau of Statistics, released on Wednesday.
This is a marked improvement on the March quarter consumer price index (CPI) figures, which showed a 1.4% increase in inflation and 7% annually.
“CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021,” said ABS head of price statistics Michelle Marquardt (pictured above left). “While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.”
Marquardt said June quarter’s annual increase of 6% is lower than the 7% annual rise in the March 2023 quarter. “This marks the second consecutive quarter of lower annual inflation, also known as ‘disinflation’, from the peak of 7.8 % in the December 2022 quarter.”
Quarterly CPI inflation
The most significant contributors to the rise in the June quarter were rents, up +2.5%, international holiday travel and accommodation (+6.2%), other financial services (+2.5%) and new dwellings purchased by owner occupiers (+1.0%).
“Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market,” Marquardt said. “Rental price growth for flats continued to outpace the growth for houses.”
Marquardt said higher demand for international travel, particularly to Europe with the start of the European summer peak season, led to price increases.
“These were partially offset by price falls for travel to South-East Asia and New Zealand as prices dipped following increases during the Christmas and school holiday periods in December and January,” she said.
Fees and charges associated with real estate transfers were the primary contributors to the increase in other financial services.
The ABS figures showed that the rate of growth in new dwelling prices continued to slow down during this quarter. This reflected lower new demand as well as material costs easing.
Food prices (+1.6%) also rose this quarter, following increases of 1.6% and 0.9 % in the March 2023 and December 2022 quarters. This rise was driven by meals out and takeaway foods (+1.7%), fruit and vegetables (+2.4%) and bread and cereal products (+2.9 %).
“A shortage of potatoes due to wet weather in key growing regions late last year has continued to place pressure on prices for potato products, including takeaway hot chips, potato crisps and frozen potato products,” Marquardt said. “Vegetable prices rose due to some salad vegetables, like tomatoes and lettuces, coming out of season.”
Reducing the June quarter rise were price falls for domestic holiday travel and accommodation (-7.2%), electricity (-1.8%), clothing accessories (-2.2%) and automotive fuel (-0.7%).
Annual inflation measures
Annually, the CPI rose 6%, with new dwellings (+7.8%), rents (+6.7%) and domestic holiday travel and accommodation (+13.9%) the most significant contributors.
Marquardt said underlying inflation measures reduced the impact of irregular or temporary price changes in the CPI. Annual trimmed mean inflation was 5.9%, down from 6.6% in the March quarter.
Annual inflation for goods was 5.8 %, down from 7.6 % in March. The ABS said prices for most goods continued to be higher than they were 12 months ago, albeit with smaller annual increases for a range of goods including food, furniture, household appliances and clothing. The exception was automotive fuel which fell 3.6 % in the year to June quarter.
Annual inflation for services rose to 6.3%, up from 6.1 % in the March quarter. This was the highest figure since 2001.
“This is the first time since September 2021 that services inflation has been higher than goods, highlighting the change from 12 months ago when goods like new dwellings and automotive fuel were driving inflation,” Marquardt said. “Now price increases for a range of services like rents, restaurant meals, child-care and insurance are keeping inflation high.”
Reacting to the latest inflation figures, Aaron Bell (pictured above right), director of Sydney brokerage Home Loan Village, said he wasn’t too surprised with the increase in inflation.
“We have obviously been having some heavy upwards interest rate pressure over the last 12 months,” Bell said. “As inflation is a lagging indicator, we aren’t likely to see the effect on inflation of higher interest rates immediately.”
Bell said the other factor was that in Australia and globally government fiscal policy had remained “relatively loose”, and was probably too relaxed to curb inflation quickly, whilst monetary policy has tightened.
“These are separate but both important parts to the inflation issue and they haven’t really run in the same direction,” he said.
As to the impact of the latest inflation numbers on interest rates, Bell said he believed it was more likely that higher interest rates “may be here to stay for a little bit longer”.
He said Home Loan Village was having conversations with clients around fixed versus variable rates and “more importantly around having decent buffers and being conservative in their approach to home lending”.
“This has obviously not been made easy by the fact that borrowing power has been greatly constrained already.”
Monthly CPI indicator
On Wednesday, the ABS also released the monthly CPI indicator for June, which rose 5.4% in the 12 months to June.
Marquardt said the monthly CPI indicator had been improved through the introduction of a new monthly Gas series. As a result, there have been small revisions to the monthly CPI indicator. The revised annual rise for May was 5.5% and April was 6.7%.
Price increases for new dwellings (+6.6%) were the most significant contributor to the annual rise, down from 8.3% in May and 9.2% in April. Rents increased to 7.3% in the 12 months to June, up from 6.3 % in May.
“The annual increase for the monthly indicator eased in June as automotive fuel prices fell 10.6%, following a fall of 8% in May and a rise of 9.5% in April,” Marquardt said.
