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Rising tobacco, childcare costs push inflation up 0.9%

MELBOURNE, AUSTRALIA - NOVEMBER 06: A general view of pedestrians crossing the road at the corner of Flinders and Elizabeth Street on November 06, 2020 in Melbourne, Australia. Lockdown restrictions in Melbourne were lifted on 28 October, with people now able to leave their homes for any reason. Cafes, restaurants, pubs and bars can reopen subject to patron limits while beauty services, tattoo parlours and any other service where you can wear a mask will be able to resume. Up to 10 people from any number of households will be able to gather outdoors, however, Victorians are still required to wear a face mask in public.  (Photo by Asanka Ratnayake/Getty Images)
(Photo by Asanka Ratnayake/Getty Images)

Consumer prices in Australia rose by 0.9 per cent in the December quarter, fresh figures have revealed.

The Consumer Price Index (CPI), which measures price inflation of household goods and services, rose by nearly 1 per cent in the three months to December last year, according to new data from the Australian Bureau of Statistics (ABS).

Aussies paid more for tobacco at the end of 2020, with these prices rising by 10.9 per cent following an increase in the tobacco excise tax.

Childcare prices soared by 37.7 per cent after free childcare policies continued to wind down, with all out-of-pocket expenses back to pre-COVID levels.

Meanwhile, Aussies paid less for electricity, which dropped by 7.5 per cent thanks to a policy in Western Australia that gave residents in that state a one-off $600 credit on their power bills.

(Source: ABS)
(Source: ABS)
SYDNEY, AUSTRALIA - JANUARY 03: Shoppers are seen at a partitioned  supermarket checkout at The Corso in Manly on January 03, 2021 in Sydney, Australia. Face masks are now compulsory in certain indoor settings across NSW as the state continues to record new COVID-19 cases in the community. As of midnight, face masks are mandatory on public transport, in retail shops and supermarkets, indoor entertainment including cinemas and theaters, places of worship and hair and beauty premises. Face masks are also mandatory for all staff in hospitality venues and casinos and for patrons using gaming services. Stay at home lockdown orders for residents in the southern zone of the Northern Beaches have now been lifted, with the area now subject to the same restrictions as Greater Sydney, while the northern Northern Beaches area remains under lockdown until 9 January.  (Photo by Jenny Evans/Getty Images)
The consumer price index (CPI) measures the price changes of fixed basket of household goods and services. (Photo by Jenny Evans/Getty Images)

Prices rose in nearly every capital city, increasing most in Melbourne (1.5 per cent). Meanwhile, inflation in Perth slid backwards by 1 per cent.


"The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction, continuation and conclusion of a number of government schemes, including childcare fee subsidies and home building grants,” said ABS head of prices statistics Michelle Marquardt.

“Since the June quarter fall of 0.3 per cent, the increase in annual inflation largely reflects the unwinding of free child care and higher petrol prices.”

Better than expected, but below target

While the rise in inflation beat expectations of 0.7 per cent, it is well below the Reserve Bank of Australia’s target of 2-3 per cent.

Australian economists took aim at the modest increase, pointing out that the RBA had not hit their target for five years in a row.

Speaking to Yahoo Finance, independent economist Stephen Koukoulas said that the prices of every household goods rose in the second half of 2020, and would continue to do so this year.

But where it counts the most, the RBA is still falling short, he said.

“The [element] that the RBA pays most attention to is the underlying inflation rate. It remains low at 1.3 per cent in annual terms, well below the RBA target of 2-3 per cent.

“This suggests that the economy is still not strong enough to generate pricing power for many firms and hence, the low inflation rate,” he said.

“It means the RBA will be on hold with interest rates near zero for a long time to come, years perhaps.”

Indeed Asia Pacific economist Callam Pickering said a confluence of factors would see inflation, though expected to rise this year, would remain at low levels for a long time.

“Inflation is likely to spike in 2021, as the impact of COVID-19 drops out,” he told Yahoo Finance.

“However, the combination of high unemployment, low wage growth and a strong Australian dollar is a clear indication that inflation will inevitably settle well below the RBA’s inflation target.”

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