PERSPECTIVE REQUIRED IN INTERPRETING CPI

July 27th,2022

ABS figures released today show that the All Groups CPI, increased by 1.8 per cent in the June quarter and by 6.1 per cent for the year. A drop in the quarterly rate from the March quarter which was the highest quarterly increase since December 1990 but an increase in the annual rate to the highest since June 2001.

 

REIA President, Mr Hayden Groves said the annual changes for the analytical series of trimmed mean and for the weighted median, which exclude large one-off price impacts, were 4.9 per cent and 4.2 per cent for the year. The annual change for the trimmed mean is the highest since the ABS first published the series in 2003.

 

“The latest CPI figures foreshadow further increases in the official interest rate by the RBA.

 

“However we have to keep things in perspective and recognise that the source of the inflation is due to supply constraints and not demand driven from an overheated economy.  Prices have risen markedly in all the advanced economies. The pandemic, weather events in Australia and Russia’s invasion of Ukraine have led to disruptions to supply.

 

“These are essentially once-off price rises. Prices won’t keep rising for these reasons and, eventually, the supply disruptions will be resolved.

 

“The Minutes of the RBA’s July Board meeting indicate that members expect inflation to peak later in 2022 and then decline back towards the 2 to 3 per cent range in 2023 as global supply-side problems continue to ease and commodity prices stabilise.

 

“Nevertheless with all the measures of inflation outside the RBA’s target zone further increases in the cash rate can be expected which will add to mortgage payments and decrease affordability but the increases will taper off to what the RBA refers to as its neutral rate – a rate that is neither expansionary nor contractionary,” he said.

 

Mr Groves said that in a speech last week the Governor of the RBA said ‘we don't need to return inflation to target immediately…but we do need to chart a credible path back to 2–3 per cent …. we are seeking to do this in a way in which the economy continues to grow and unemployment remains low’.