Yahoo Finance Inflation goes the wrong way: Here's why it could get worse
August was one of the worst months we've had for inflation.
If you were finding the chatter about receding inflation hard to believe, prepare to explode in righteous indignation.
The latest data shows you were right and they were wrong: Inflation rose in the month of August on the back of soaring petrol prices, and an acceleration in bread price rises.
Also by Jason Murphy:
As the next chart shows, August was one of the worst months for inflation we’ve had. It was the worst month for inflation this year and even faster inflation than in many months during 2022.
Prices rose 0.8 per cent in just one month, driven in particular by a giant rise in the price of fuel. August was when petrol popped back solidly above $2 a litre, and that is showing up loud and clear in the inflation statistics, as the next chart shows.
Prices are meant to be rising slower and slower, not faster and faster. That’s why the RBA has taken their blade from our necks. They quit lifting interest rates after June and mortgage holders felt able to take a breath again. To make plans. But the latest data could cause the RBA to tighten further.
No wonder consumer confidence is still so low. There was a little bobble upwards a few months ago, an optimistic pop upwards from recent record lows. But, more recently, that bobble is eroding as we sink back into grim despair. Australia’s mood is linked very tightly to the cost of living and we’re growing accustomed to the fact prices are rising beyond our control right now.
It’s proven to be a tough time to run a referendum. People are focused on cost of living and Australia isn’t in a mood to deal with big-picture issues. As Bill Clinton once said, “It’s the economy, stupid.”
It could still get worse
As the next chart shows, the CPI with volatile items removed is higher than the headline CPI. We’ve experienced lower inflation than the economy is really giving, thanks to a bit of relief in vegetables, fruit and - until recently - fuel. One storm through our vegetable-growing regions or a bad bushfire summer and those volatile prices could get worse again, making inflation really bad again.
Your experience of inflation depends a lot on what you buy. If you’re renting, ouch. Rents have soared a whopping 7.8 per cent over the past year, one of the few categories still rising faster and faster.
However, if you live under your parents’ roof but buy your own clothes and pay your own phone bill, your experience of inflation has been far milder. Garments are up just 0.4 per cent over the year and communication is up just 1.6 per cent.
I’d wager a lot of parents are finding their kids reluctant to move out. And that makes sense given the high rates of migration into the country. Those people need homes and we will need new home building to catch up before kids can fly the coop affordably.
Healthy eaters are doing best of all, with the price of fruit and vegetables falling over the past year. The guy who eats salad and walks to work is feeling smug compared to the guy who eats bread and drives and, as the next graph shows, it’s not just because their doctor praises them when they go in for a checkup.
Over time, Australia’s inflation is still expected to fall. But slowly. We should be back in the RBA’s target range by the end of 2025. Until then, buckle up for a bumpy ride.
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to our free daily newsletter.
