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The Australian Bureau of Statistics (ABS) released its quarterly consumer price index (CPI) data on Wednesday (26 April) for the first quarter ended March 2023 (1Q23) revealing that inflation has fallen from its peak to 7 per cent, over the 12 months, after hitting 7.8 per cent in the December quarter (4Q23) — a 33-year record.
The data showed prices rose 1.4 per cent over the March quarter, with prices continuing to rise for most goods and services.
However, the ABS said that “rises have moderated” in the most recent quarter, resulting in lower annual inflation.
As the central bank has been firm on bringing down high inflation to the target 2–3 per cent range, RBA governor Philip Lowe has noted the decisive role the March quarter CPI figures would play in determining the central bank’s next decision on 2 May.
Indeed given the annual inflation rate remains well above the central bank’s target range, CreditorWatch’s chief economist Anneke Thompson said it’s “cause for concern” ahead of the RBA’s May board meeting.
“While price increases of goods continue to moderate, and indeed have come down in some categories, services inflation continues to rise,” Ms Thompson said.
“Higher energy costs, a lack of staff driving up wages and continued demand for travel, education and rental properties are largely behind the increase in services inflation.”
In addition, service providers have been forced to pass on the input costs of energy and wages to their customers, particularly in the restaurant and hospitality sector.
“High supply costs continue to be a cause for concern for food and beverage businesses, and we expect these businesses to be the largest contributor to business insolvencies in the year ahead,” Ms Thompson said.
It comes following CreditorWatch’s Business Risk Index (BRI) data showed the business sector was under pressure from rising costs despite notable growth in business lending.
AMP economist Diana Mousina mirrored those concerns of continued heightened inflation figures but added that the “trimmed” mean was lower than expected, which is the Reserve Bank’s preferred measure of core inflation.
The trimmed mean inflation was up by 1.2 per cent or 6.6 per cent over the year, while consensus was looking for a 1.4 per cent lift and AMP was expecting 1.3 per cent, she said.
“[The] March quarter inflation data is the last major price of economic data before the RBA’s May meeting next Tuesday,” Ms Mousina said.
“We think the slowing in inflation momentum confirmed in today’s data is enough to allow the RBA to keep the cash rate unchanged at 3.6 per cent at next week’s board meeting. But it is a close call.”
The major bank’s economists remained split on how another high annual inflation quarter would warrant another cash rate pause, with CBA and Westpac’s calling a 25-bp increase in May was more than likely, while ANZ and NAB had indicated another pause.
March quarter inflation still runs hot
The March quarterly figures followed monthly falls observed in January (7.4 per cent) and February (6.8 per cent).
According to the data, health (3.8 per cent) and education (5.3 per cent) marked some of the biggest price rises for the quarter, with education fees “skyrocketing to their highest levels in over five years”.
However, new dwelling price growth continued to ease to 1.2 per cent, from 1.7 per cent in the previous quarter, falling from its record annual rise in the September 2022 quarter (20.7 per cent).
“The recent moderation in prices reflects improvements in the supply of construction materials and a softening in new demand,” the ABS said.
“The number of payments being made under various Government construction grant programs introduced in 2020 have reached very low levels compared to previous quarters, resulting in a small impact on new dwelling prices.”
Rental price growth continues to increase in Sydney and Melbourne with both cities recording their strongest annual rises since 2012, the data revealed.
After two years of steady increases, the prices for goods eased from 9.5 per cent to 7.6 per cent, due to discounting on furniture, appliances, and clothes in the March quarter and lower automotive fuel prices.
Annual food inflation also eased to 8 per cent, down from 9.2 per cent in the December quarter.
Rent and electricity prices hit new records
Meanwhile, rents, gas, and electricity continue to rise, with rental price growth in Sydney (4.8 per cent) and Melbourne (3.1 per cent) recording their strongest annual rises since 2012.
Gas and other household fuels lifted across all capital cities, with the annual rise in gas prices of 26.2 per cent — marking the largest on record.
Annual electricity prices increased by 15.5 per cent in the March quarter, up from 11.7 per cent in December, as the unwinding of rebates in Western Australia, Queensland, and ACT begins to show.
In addition, annual inflation for services recorded its largest annual rise since 2001, driven by higher prices for holiday travel, medical services, rents, and restaurant meals.
Inflation ‘unacceptably high’: Treasurer
The figures also come ahead of the government’s budget announcement on 9 May, with Treasurer Jim Chalmers noting that “inflation is still unacceptably high”.
“We recognise that high energy prices are compounding the inflation challenge,” Mr Chalmers said.
“We will provide targeted cost‑of‑living relief that does not add to inflation.
“Our plan for inflation is about providing cost‑of‑living relief, tackling the supply chain challenges that were left to us and getting wages growing again in a responsible way, while demonstrating spending restraint in the May Budget.”
[Related: March CPI figures will set the scene for the RBA]
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