The cost of living has skyrocketed, climbing the most since 2002.
The consumer price index (CPI) rose 2.1 per cent in the March 2022 quarter and 5.1 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).
But the important figure the Reserve Bank of Australia (RBA) will be focusing on is underlying inflation.
The RBA said it wouldn’t move rates until underlying inflation was sustainably in the 2-3 per cent range, but the ABS data shows annual underlying inflation increased to 3.7 per cent, up from 2.6 per cent.
Underlying inflation increased to 1.4 per cent in the March quarter, the strongest movement since the beginning of the series in 2002.
The most significant contributors to the rise in the March quarter CPI were new property prices (+5.7 per cent), fuel (+11 per cent) and tertiary education (+6.3 per cent).
"Continued shortages of building supplies and labour, heightened freight costs and ongoing strong demand contributed to price rises for newly built dwellings,” head of prices statistics at the ABS Michelle Marquardt said.
"The CPI's automotive fuel series reached a record level for the third consecutive quarter, with fuel price rises seen across all three months of the March quarter."
Pressure on the RBA to hike
The new figures have overshot the Reserve Bank of Australia’s (RBA) target range of 2-3 per cent and is sharply higher than the December quarter, when annual inflation was sitting at 3.5 per cent.
The latest RBA board minutes showed the central bank was ready for inflation to breach its target, but the blowout could hasten a rise in the record-low 0.1 per cent cash rate.
A rise in the official cash rate will force banks to raise borrowing costs for households and businesses.
Treasurer Josh Frydenberg was on the front foot on cost-of-living issues when he presented the 2022 Budget.
Frydenberg announced a number of measures to help tackle the rising cost of living faced by many Australians.
Both parties have campaigned they will help ease the cost of living, which has been exacerbated by rising petrol prices as a result of the war in Ukraine and supply chain issues caused by COVID-induced lockdowns.
Betashares chief economist David Bassanese said he believed the RBA could hike as soon as next week at the bank’s May meeting.
“Given heightened global supply chain bottleneck problems, and more aggressive rate hikes expected in the United States, however, I now think the RBA should, and likely will, raise interest rates next week by 15 basis points [bps] – the case to hike is so obvious it need not feel bound by next month’s wage report,” Bassanese said.
Bassanese said a small rate hike at the May meeting next week would allow for a more gradual increase and would be softer for Aussies to absorb.
“All up, I think the RBA should and will conclude it makes more sense to start off slow with 15bps next week following the CPI, followed by a traditional 25bps move in June,” he said.
“Indeed, the only real argument for delay now is the current federal election.
“As was the case in 2007, I think this is another good opportunity for the RBA to again demonstrate its independence.”