Our take on the latest Consumers price index (Mon 18 Oct 2021)
Inflation up to 4.9%pa
Transport costs up 13%pa
Housing and household utility prices up 6.0%pa
The key numbers...
- Headline inflation was 4.9%pa, with prices in the September quarter rising 2.2% from the June quarter. The result was considerably higher than the Reserve Bank’s quarterly forecast of 1.4%.
- This lift was the fastest quarterly rise in over a decade, since the GST hike in 2010. Excluding GST increases, it was the largest quarterly jump in prices since 1987.
- Transport costs (up 4.2%), housing and household utilities (up 2.6%), and recreation and culture (up 2.9%) were the broad groupings that showed the fastest quarterly growth.
- Tradable inflation was up to a 13-year high of 5.7%pa, while non-tradable inflation reached 4.5%pa.
CPI components
Annual % changes
...and our reaction
- Prices are surging domestically and internationally, as strong demand conditions are chasing restricted and disrupted supply conditions.
- Fuel prices and inputs into building have been key contributors to the September quarter’s high inflation rate.
- The latest CPI data confirms that price rises are being driven not only by supply bottlenecks and overseas inflationary pressures, but also an overheated domestic economy.
- Materials and stock shortages are a large component of this high level of inflation, although considering how broad-based inflation is and the labour market’s tightness, we expect labour costs are also to blame.
- The level of monetary stimulus right now is well beyond what is needed, and the Reserve Bank will hike interest rates again in November. Despite last month’s speech seeming to downplay the Bank’s appetite for larger rate increases, a 50-basis point rise must be a possibility.
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