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According to Housing Industry Association (HIA) chief economist Tim Reardon, the cost of home building materials contributed to the decline in inflation, which was a main driver of Australian inflation during COVID-19.
“Last year, this component represented more than a quarter of headline inflation in Australia. This year, it represented barely more than a tenth,” Mr Reardon said.
The latest Consumer Price Index (CPI) data released by the Australian Bureau of Statistics (ABS) showed encouraging signs that inflation in Australia is beginning to moderate as the data revealed a 0.8 per cent increase in inflation (contributing to an annual inflation rate of 6.0 per cent) for the second quarter ended June 2023.
“Further declines are likely in the coming quarters as the volume of work under construction slows,” Mr Reardon said.
“One in 10 Australians are employed in the home building industry and it is not until the rise in the cash rate causes building activity to slow, that the impact of the Reserve Bank of Australia’s (RBA) actions will be evident in employment figures.”
Mr Reardon added that a large volume of building work has “obscured” the adverse impact of rising rates on the building industry and wider economy.
“This has led to rates rising faster and higher than necessary,” Mr Reardon said.
Furthermore, Master Builders Australia chief executive Denita Wawn said the sizeable slowdown in inflation should allow the RBA to “pause for a time on interest rates”, despite still being well above target.
“We are now at the stage where further interest rate increases will probably do more harm than good to our industry and the broader economy,” Ms Wawn said.
However, despite the fall in the inflation rate, Ms Wawn noted there are no signs of easing for the rental market as continued escalation in rental costs recorded the sharpest quarterly jump since 1988.
“Rents are continuing to accelerate because landlords’ mortgage interest costs have risen so substantially over the past 14 months, and we simply aren’t building enough new higher-density homes to meet rental demand,” she said.
“The annual volume of new apartment and unit starts dropped below 100,000 back in 2019 and has come nowhere near this threshold ever since.”
Ms Wawn urged that the supply of higher-density homes “needs to be resuscitated urgently”.
“Doing so will require action to reduce the costs of creating new homes, bolstering investor demand, and making the risks to builders and developers a little less confronting,” Ms Wawn added.
“Even though the overall inflation rate has improved, services inflation has worsened. Services are labour-intensive and the shortage of workers in our economy is one of the main sources of price pressures here.”
[RELATED: CPI data points towards cash rate hold: Economists]
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