By Shane Wright
When it comes to inflation, there’s the world inhabited by Australian shoppers, and then there’s the one called home by the Reserve Bank.
The September quarter consumer price index exposed just how different those two worlds have become and highlighted the dangers of a disconnect developing between the RBA’s denizens and the residents of Australia’s suburbs and towns.
Overall prices lifted by just 0.2 per cent in the quarter, the best inflation performance since the middle of 2020. Annual inflation tumbled from 3.8 per cent to 2.8 per cent, the lowest since the March quarter of 2021.
This is the world of the Australian shopper.
Bread prices, for instance, were climbing at more than 14 per cent in Sydney and Melbourne a little over a year ago. Now, bread inflation is up by just 1.2 per cent.
You have to go back to the days of Coles and Woolworths slugging it out over cheap loaves and milk to get a bread inflation rate so low.
Shoppers see inflation close-up every day. They may start to wonder why the RBA is not cutting interest rates as inflation eases.Credit: Getty
If you slapped some cheese on that bread, it’s actually getting cheaper. Inflation for tasty and vintage is now running at minus 0.3 per cent. It had reached 15.1 per cent early last year.
For lovers of a cheese toastie, life can barely get any better.
Anyone who has opened a power bill in recent weeks would have noticed it’s lower than expected, due solely to the government’s energy supplements. Petrol today is almost 15 cents a litre cheaper than it was on July 1.
Even big-ticket items, such as major household appliances, badly affected by COVID-related supply problems, are getting cheaper. Fridge and freezer inflation hit 10.2 per cent in late 2022 – now it’s minus 1.7 per cent.
Shoppers, especially those with a mortgage, would be thinking the Reserve Bank should be jumping up and down with joy at this result.
It is rarefied air for the Reserve Bank, which has not covered itself in glory when it comes to inflation for the best part of a decade.
In the now-41 quarters since September 2014, headline inflation has been in the bank’s 2-3 per cent band on just five occasions, including Wednesday’s result.
But the bank is keeping its eye on so-called underlying inflation. This is a measure of prices that excludes items that are either going through the roof (like insurance, which is still climbing by 14 per cent a year) or crashing through the floor (like electricity).
It does this because it wants to know what’s at the heart of Australia’s price pressures. Like a cardiac surgeon, the RBA is focused on what’s keeping inflation pumping.
On this front, underlying inflation improved to 3.5 per from 4 per cent a quarter ago – and 6.8 per cent in late 2022. Against the RBA’s own forecasts, underlying inflation has arrived three months early.
But it still rose by 0.8 per cent in the quarter. That’s still too high for the bank’s liking, with the RBA continuing to harbour suspicions that inflation remains sticky even if the trend over the past 12 months has been in one direction.
That’s why the RBA is likely to use its meeting on Melbourne Cup Day to, again, talk tough about the battle against inflation, dashing the hopes of millions of mortgage holders that life might get a little easier in the run-up to Christmas.
The longer it does that, however, as consumers notice prices either falling or not going up, the tougher it will be for the bank to argue about the dangers of inflation.
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