Our take on the latest Consumers price index (Thu 21 Apr 2022)
Inflation up to 6.9%pa
Transport costs up 14%pa
Housing and household utility costs up 8.6%pa
The key numbers...
- Inflation accelerated to 6.9%pa in the March 2022 quarter, slightly below market expectations of 7.1% and lower than our pick of 7.4%pa.
- At 6.9%, inflation is running at more than double the Reserve Bank’s upper target level, and at its fastest since the 7.6% in the June 1990 quarter.
- Inflation of tradable (overseas influenced) goods and services is sitting at 8.5%pa while non-tradable (domestic-based) inflation grew at 6.0%pa – the fastest non-tradeable inflation since these series began in 2000.
- There is a stark contrast between goods inflation which rose 8.7%, compared with services inflation which rose 4.1%pa, as supply disruptions and transport costs affect goods more than services.
- Transport prices are up 14%pa, housing and household utility prices are up 8.6%, and food prices rose 6.7%, as price growth remained broad-based.
CPI components
Annual % changes
...and our reaction
- Prices are rising fast, and across the board, despite a slightly weaker than expected inflation figure for March 2022.
- Government intervention in fuel and transport prices limited even further inflation, although borrowing $350m a quarter is an expensive subsidy, and removing this support would send inflation higher.
- High fuel costs will continue to filter through into prices across the economy, and the risk of a wage-price spiral remains as a tight labour market will see wages pushed up to retain and attract staff and prices rise to cover costs – both factors that will keep inflation higher.
- The war in Ukraine and Chinese lockdowns are two major areas of concern limiting global supply and meaning the mountains of cash printed have even less supply to chase, unfortunately these are factors out of our control.
- Supply chain disruptions and war set aside, central banks across the globe (including ours and importantly the US Federal Reserve) have been too slow to put on the breaks and failed to keep inflation under control. They now need to reduce stimulus aggressively to bring economic demand back in line with constrained supply.
- Looking ahead we expect inflation to remain high, peaking at over 7%pa in the middle of 2022, before slowly starting to ease later this year.
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