Inflation Rate Hits 20 Year High

It is becoming obvious that the low cash rate of 0.1 per cent that Australian’s have been used to over the last couple of years is no longer appropriate for our economy given the recent inflation spike. A cash rate increase delay by the Reserve Bank of Australia (RBA) could possibly mean larger interest rate hikes in the short term.

The Australia Bureau of Statistics (ABS) reports that the Consumer Price Index (CPI) rose 2.1 per cent in the March quarter and 5.1 per cent annually.

Michelle Marquardt, Head of Prices Statistics at the ABS stated “The CPI recorded its largest quarterly and annual rises since the introduction of the good and services tax (GST)”.

Graph

Source: Australian Bureau of Statistics

According to the ABS, the contributing factors to the rise in the March quarter were price increases in:

  • new dwellings;
  • automotive fuel; and
  • tertiary education.

New Dwellings

Ongoing building supply shortages and continued scarcity of qualified labour helped to bring about price increases for newly constructed homes.

Automotive Fuel

Unsurprisingly, the CPI for automotive fuel continued to rise in the March quarter with fuel prices consistently at peak levels. As stated by Federal Treasurer, Josh Frydenberg, “This is the single biggest increase in fuel prices since Iraq’s invasion of Kuwait more than 30 years ago, in 1990.”

Tertiary Education

The rise in tertiary education costs is a direct result of the increase to student contribution bands and fees, introduced last year.

Arguably, inflation is likely to be one of the most significant challenges we face over the next few years. This means the RBA will need to act aggressively, to bring inflation down as soon as possible. A delay in the interest rates increases, could mean interest rates will need to eventually increase dramatically, rather than gradually over time.

Article written by Joseph Matina of Accumwealth Management. Joseph provides an array of services to clients across the industry, from real estate consulting and coaching to credit risk analysis and advice on finance, lending, accounting and compliance issues.

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