Navigating Economic Changes: Australia's Latest Inflation Data

In the final quarter of 2023, the Australian Consumer Price Index (CPI) exhibited an increase of 0.6 percent, contributing to an annual rise of 4.1 percent, according to the latest data provided by the Australian Bureau of Statistics (ABS).

Michelle Marquardt, Head of Prices Statistics at ABS, noted that "The CPI's 0.6 percent uptick in the December quarter represents a slowdown from the 1.2 percent increase observed in the prior September quarter. This marks the smallest quarterly increment since the March 2021 quarter."

While prices continued their upward trajectory across most goods and services, the annual CPI inflation rate has eased from its zenith of 7.8 percent in December 2022 to a comparatively moderate 4.1 percent in December 2023.

Synergy Business Finance Director Brendan Philp shares his insights,

"In good news for mortgagors the Australian Bureau of Statistics (ABS) has released the latest Consumer Price Index (CPI) data. In the December 2023 quarter CPI only rose 0.6%, down from 1.2% in the September quarter. This is the smallest quarterly rise since March 2021. Annual trimmed mean inflation is now down to 4.2%, down form the peak of 6.8% in the December 2022 quarter.

With inflation trending down this will hopefully provide the RBA with the data to keep the cash rate stable in the short term with a reduction perhaps later in the year.

Whilst the headline quarterly CPI figure is good news, the contributing factors still indicate that many people will be dealing with a cost-of-living crisis. Housing increased by 1.0%, alcohol and tobacco by 2.8%, insurance by 3.8% and rent by 0.9% following a 2.2% increase in the September quarter. Given the continued squeeze on the family budget it has never been more important to seek expert advice from your accountant and finance broker to ensure you are informed and making the most of your money".

 

Weighted Average of Capital Cities

Key Contributors to Quarterly CPI Movement

In the December quarter, the most notable contributors to the rise in CPI were Housing (+1.0 percent), Alcohol and Tobacco (+2.8 percent), Insurance and Financial Services (+1.7 percent), and Food and Non-Alcoholic Beverages (+0.5 percent).

Within the Housing category, New Dwellings purchased by owner-occupiers saw a notable increase of 1.5 percent, with Rents (+0.9 percent) and Utilities (+0.6 percent) also contributing to the upward trend.

Ms. Marquardt explained, "Rising labor and material costs played a part in the price hikes observed in the construction of new dwellings, with the 1.5 percent increase slightly exceeding the 1.3 percent rise in the September 2023 quarter."

Changes in Rental Prices

Rental prices increased by 0.9 percent in the quarter, following a 2.2 percent rise in the preceding September quarter. These fluctuations were partly influenced by alterations to Commonwealth Rent Assistance. Excluding these changes, rental prices would have increased by 2.2 percent in the December 2023 quarter.

Factors Driving Tobacco and Insurance Costs

Tobacco prices witnessed a substantial rise of 7.0 percent, driven by the introduction of the 5 percent annual tobacco excise indexation and biannual Average Weekly Ordinary Time Earnings increase, both applied on September 1, 2023.

Insurance costs surged with a robust quarterly movement of 3.8 percent, following a 2.8 percent rise in the September 2023 quarter. This was attributed to higher premiums in motor vehicle, house, and home contents insurance. Over the past year, Insurance recorded an impressive 16.2 percent increase, marking the highest annual rise since March 2001.

Food and Non-Alcoholic Beverage Prices

While prices in this category did rise during the quarter, the increase was the smallest since September 2021. Notable contributors to the rise included Meals out and takeaway foods (+0.9 percent), Food products not elsewhere classified (+1.9 percent), and Bread and cereal products (+1.9 percent). Partially offsetting this quarterly rise were price reductions for Meat and seafood (-1.2 percent) and Fruit and vegetables (-1.2 percent).

Ms. Marquardt noted, "Meat and seafood prices experienced declines this quarter due to increased supply, leading to price drops of 12.1 percent for Lamb and goat and 1.5 percent for Beef and veal."

Annual Inflation Figures

On an annual basis, the CPI registered a 4.1 percent increase, with Housing (+6.1 percent), Food and Non-Alcoholic Beverages (+4.5 percent), and Alcohol and Tobacco (+6.6 percent) being the primary contributors.

Underlying Inflation Measures

To mitigate the influence of irregular or temporary price fluctuations in the CPI, underlying inflation measures are employed. Annual trimmed mean inflation was calculated at 4.2 percent, down from 5.1 percent in the September quarter. This represents the fourth consecutive quarter of declining annual trimmed mean inflation, having receded from its peak of 6.8 percent in the December 2022 quarter.

Monthly CPI Indicator

In addition to quarterly data, the ABS has also released the monthly CPI indicator for December. This indicator showed a 3.4 percent increase over the 12 months to December, in contrast to the 4.3 percent increase observed in the 12 months to November. Housing (+5.2 percent), Food and Non-Alcoholic Beverages (+4.0 percent), Alcohol and Tobacco (+6.8 percent), and Insurance and Financial Services (+8.2 percent) were the key drivers behind this rise.