Inflation DROPS in Australia – but is still way too high and here’s how it’s going to affect your mortgage
By Stephen Johnson, Economics Reporter For Daily Mail Australia
02:33 26 Jul 2023, updated 04:54 26 Jul 2023
- Consumer price index rose by six per cent in the year to June
- Still well above Reserve Bank’s two to three per cent target
Inflation has fallen but still remains well above the Reserve Bank target – meaning more interest rate rises are likely.
The consumer price index rose by 6 per cent in the year to June, down from 7 per cent in annually in March and 7.8 per cent in late 2022, the Australian Bureau of Statistics revealed on Wednesday.
The quarterly measure, which is more comprehensive, showed price pressures remain elevated, with inflation still well above the Reserve Bank’s two to three per cent target.
The supermarket checkout is still a stressful place to be with dairy product prices soaring by 15.2 per cent annually, as bread and cereal costs rose by 11.6 per cent.
Housing costs, including rent, are continuing to surge, growing by 8.1 per cent during the last financial year.
A separate, official monthly measure showed overall inflation in June growing at an annual pace of 5.4 per cent, down from a downwardly revised 5.5 per cent in May.
The high measures of inflation – for the June quarter and June – have stirred fears the Reserve Bank of Australia will increase interest rates again in August by another 0.25 percentage points, taking the cash rate to an 11-year high of 4.35 per cent.
The 30-day interbank futures market is pricing in another rate rise on Tuesday next week, which would be the 13th since May 2022, adding to the most aggressive pace of monetary policy tightening since 1989.
This would see monthly repayments on an average, $600,000 mortgage rise by another $99 to $3,868, up from $3,769 as a Commonwealth Bank variable rate rose to 6.69 per cent, up from 6.44 per cent.
Treasurer Jim Chalmers said the ‘welcome easing in inflation’ from a recent 32-year high was ‘really pleasing’ but noted that ‘Australians are still under the pump’.
‘We’d like to see it moderate faster but we are making welcome progress in this fight against inflation,’ he said.
‘It’s really pleasing to see that inflation in our economy is moderating further.’
Dr Chalmers used to occasion to criticise the Greens and the Coalition for blocking Labor’s $10billion House Australia Future Fund, to build 30,000 social housing units over five years.
‘It’s a shortage of affordable rental properties which is pushing up rents in our economy,’ he said.
In a rare bit of good news, petrol prices have fallen by 10.6 per cent during the past year, with 91 octane unleaded fuel selling for 176.5 cents a litre in June.
The monthly reading also showed a 12.9 per cent annual increase in holiday and accommodation costs.
With volatile items, like petrol and holiday accommodation excluded, the underlying measure of inflation is still high at 6.1 per cent.
That means outgoing Reserve Bank Governor Philip Lowe could potentially raise rates in August and September before handing over to his deputy Michele Bullock on September 18, following the end of his seven-year term.
The RBA is expecting inflation to remain above its target band until mid-2025, with Dr Chalmers noting ‘there is still a long way to go to head off this inflation challenge’.
The official inflation data was released a day after supermarket giant Coles said customers were cutting back on steak and switching to minced meat to cope with the cost of living crisis.
Vittoria Bon, the group’s manager of government and business relations, told a parliamentary hearing certain meats had become a luxury item as customers focused on weekly specials.
‘So customers are more conscious of those and with cost of living, they are trading down into more value products,’ she told the House of Representatives economics committee hearing on Tuesday.
‘So, for example, instead of perhaps buying steak, people will buy mince, which we’ve got dropped and locked at $12 for a kilo, so there is a change in what people are buying as well as when they shop.’
This is less than half the price of T-bone steak, with 1kg selling for $30.
Woolworths chief commercial officer Paul Harker said milk prices were more likely to stay higher.
‘The biggest area we’ve seen with cost increases has been across the dairy category and that’s been a function of the significant lift in farmgate milk prices across the board,’ he said.
Elevated grain prices would also feed into meat prices, but these wholesale pressures were moderating.
‘We are starting to see meat prices, in some instances, come down if you think of beef and lamb, less so in pork,’ Mr Harker said.
The monthly inflation measure showed meat and seafood prices rising by 2.7 per cent in the year to June as fruit and vegetable prices rose 1 per cent, with both levels well below the inflation rate.
Mr Harker said Woolworths operated on a three-month cycle when it came to buying beef cattle livestock to be slaughtered, processed and put on supermarket shelves.
‘We know that meat is a very important staple for our customers,’ he said.
Deloitte Access Economics partner Stephen Smith said rate rises were unnecessary.
‘Excessive inflation in Australia has mostly been caused by supply side factors, meaning that interest rate increases have mostly been ineffective at bringing inflation under control,’ he said.
‘Rather, inflation has fallen as a result of repairs to global supply chains and an easing of import prices.’
AMP chief economist Shane Oliver said that even if the Reserve Bank paused next week, rates would still go up one more time in 2023 with wages growth still a concern.
‘It’s a very close call as the RBA is still likely to be concerned by still high underlying inflation on year on year basis, the still tight jobs market and upside risks to wages growth,’ he said.
‘Either way we have revised down our forecast for the cash rate peak to 4.35 per cent, from 4.6 per cent.’
