Our take on the latest Consumers price index (Wed 25 Jan 2023)
Annual inflation remained at 7.2%pa in the December quarter
Residential buildings costs up 2.1% from September 2022
72% of all items rose in price
The key numbers...
- The Consumers Price Index (CPI) rose 1.4% in December 2022 from the quarter before, keeping the annual inflation rate at 7.2%.
- This result was in line with the Infometrics estimate, slightly stronger than the market pick of 7.1%, and below the Reserve Bank’s 7.5% forecast.
- Non-tradeable prices rose a further 1.5% in the December 2022 quarter, keeping their annual inflation rate at 6.6%pa.
- Inflation remains broad-based, with 72% of all items measured in the CPI rising in price in the December 2022 quarter. This proportion was the second largest on record, with data back to 2010. Additionally, the number of items falling in price, 16.2% of the total, was the lowest on record.
- Building costs advanced a further 2.1% in the December quarter, although this increase includes a small quality adjustment after new heating and window standards raised both the quality of building and the price of building.
- Transport costs increased 0.9% in the December quarter, despite a 7.2% fall in petrol prices over the quarter. Increased flight costs offset this decline, with a 14% lift in domestic airfares and a 19% jump in international airfares.
- Food inflation remains high, with an 11%pa increase in food prices contributing 1.9 percentage points to the 7.2%pa CPI increase.
- There were also notable increases in prices for household contents and services (with large increases in furniture and household utensils) and recreation and culture (including an 8.3% quarterly lift for games, toys, and hobbies).
Inflation focus switching from goods to services
Annual inflation rate, by type
...and our reaction
- Today’s data reiterates the September quarter result, which suggested that inflation is not accelerating further. But the bad news is the absence of any signs that the Reserve Bank’s actions are starting to bring inflation down yet.
- In fact, the large spread of items with prices increasing is still a worry, as it indicates that inflationary pressures remain broad, and harder to bring under control.
- Inflationary pressures appear to be switching from goods to services, with goods prices rising 1.1% in the December 2022 quarter, compared to a 2.0% lift in services prices. Goods inflation has moderated from 9.0%pa in June 2022 to 7.9%pa now, but services inflation has jumped to 6.0%pa, the fastest annual rate since mid-1995.
- The switch raises risks of more sustained inflation, with the emerging price relief from improving supply chains being overtaken by rising service provision costs.
- Although the headline inflation rate is lower than the Reserve Bank had forecast in November, the breadth of price pressures in today’s data means the Bank will remain highly concerned about further inflation in coming quarters. We continue to expect the Reserve Bank to follow through with a 75 basis point hike to the official cash rate in February.
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