Australia’s inflation rate surges to 6.1 per cent, ABS data shows, as cost of living crisis deepens

With inflation at its highest point in decades and the cost of living crisis is tougher than ever, but the government has issued a grim prediction.

Australia’s inflation rate has hit 6.1 per cent – slightly less than forecast – but still a big hit to the cost of living.

The figure makes it less likely that the Reserve Bank (RBA) will raise the official cash rate by 75 basis points in August. But it’s still expected to increase by 50 basis points.

Data released by the Bureau of Statistics (ABS) on Wednesday morning revealed the consumer price index (CPI) rose by 1.8 per cent in the June quarter, with the annual inflation rate increasing to 6.1 per cent.

It’s the highest inflation rate since December 1990, when Bob Hawke was still prime minister.

The CPI previously rose by 2.1 per cent between the December 2021 and March 2022 quarter.

The current figure is substantially higher than the RBA’s inflation target of 2-3 per cent, increasing the pressure to hike rates again.

Treasurer Jim Chalmers has described the inflation figures as “confronting”, with the Price Minister conceding that families are struggling with cost of living pressures.

“We face economic headwinds. We face rising inflation. We face rising interest rates. There are real challenges there, but I’m comfortable that my government has a plan to deal with those challenges,’’ he said.

Dr Chalmers is expected to use Thursday’s economic statement to parliament “to talk more about these challenges and how we are responding”.

“Our economic plan is all about making the economy more resilient, lifting the speed limits on growth and giving Australians more opportunities to get ahead,” he said.

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Highest inflation rate in decades

The most significant contributers to the June quarter’s CPI spike were new dwellings (up by 5.6 per cent) and petrol prices (4.2 per cent).

The price of goods (2.6 per cent) continued to rise faster than that of services (0.6 per cent).

There was a particularly large increase to foodprices, driven by supply chain disruptions due to floods, labour shortages, and rising freight costs. Fruit and vegetable prices went up by a stunning 7.3 per cent.

Meat and seafood and bread were up 6.3 per cent year-on-year.

Non-discretionary items - expenditure you can’t really avoid - went up by 7 per cent, increasing cost of living pressures on families further.

Furniture prices also rose by 7 per cent between March and June due to increased transport and material costs and stock shortages.

“The quarterly increase of 1.8 per cent was the second-highest since the introduction of the GST, following on from a 2.1 per cent increase last quarter,” said Michelle Marquardt, Head of Prices Statistics at the ABS.

“Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings. Fewer grant payments made this quarter from the federal government’s HomeBuilder program and similar state-based housing construction programs also contributed to the rise.

“The CPI’s automotive fuel series reached a record level for the fourth consecutive quarter. Fuel prices rose strongly over May and June, following a fall in April due to the fuel excise cut.”

Annual price inflation for new dwellings is currently the highest recorded “since the series commenced in 1999”, Ms Marquardt added.

The annual inflation rate is also the highest since the GST was introduced.

“Annual trimmed mean inflation was the highest since the series commenced in 2003 and annual goods inflation was the highest since 1987, as the impacts of supply distruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy,” she said.

Shopping is still getting more expensive. Picture: Lisa Maree Williams/Getty Images

Dr Angela Jackson, from Impact Economics and Policy, told ABC TV the ABS data was “not that bad”, given many experts expected inflation to go even higher.

“The fact it is coming from goods (rather than services) is good news, in terms of a lot of it has been imported from overseas because of the supply blockages,” Dr Jackson noted.

“It is still very high by historical standards, and it means interest rates will probably go up again next month, probably only by half a percentage point.

“Overall, it is tough out there. Looking at the figures, we can see that for nondiscretionary - remember, the things we can’t avoid - that is running at 7.6 per cent on the nondiscretionary items that households can’t avoid paying.

“(It means that for the low income households and those on fixed incomes, these price rises are really hurting.”

Government says ‘worse to come’

Speaking from Parliament House in Canberra, Dr Chalmers said he was “not surprised” by the inflation data, though that made it no less “confronting”.

“It’s not news to millions of Australians who feel this inflation challenge every time they go to the supermarket, and every time the bills arrived. This inflation outcome mirrors the lived experience of Australians who are doing it tough right now,” he said.

“Inflation is high and rising. It will get tougher before it gets easier. The reality is, the quarterly outcome does not yet include the electricity price spike that came in July.”

Dr Chalmers said the government was focused on dealing with the supply chain issues.

He said the global economy was “treading a precarious and perilous path” and there was worse still to come.

“The inflation in the economy is primarily but not exclusively global,” he said.

“I think Australians understand when they’re at the supermarket, when prices are going through the roof, that this challenge is partly global and there are domestic components of this challenge as well.

“I wanted to reassure them that the government is very focused on those domestic factors.”

The Treasurer said the “illegal, immoral invasion of Ukraine has dire consequences for energy and food security and we are all feeling that around the world as well.”

He also pointed toChina’s continued pursuit of a “Covid zero” policy as a key global factor.

The Treasurer told Australians to expect updated forecasts for inflation, wages and economic growth in his ministerial statement on Thursday.

“Inflation will get worse before it gets better. But it will get better,” he said.

“It’s going to be a difficult time ahead.

“My ministerial statement tomorrow will show the combined impacts of rising interest rates and slowing global growth on our own economic growth here in Australia. It will be confronting.

“What you can expect to see in the ministerial statement tomorrow is inflation revised up substantially, growth revised down, and all of the implications that that brings.”

Jim Chalmers speaking in Canberra. Picture: Gary Ramage/NCA NewsWire

The opposition’s treasury spokesman, Angus Taylor, argued Labor had promised cost of living relief during the election campaign but was now telling struggling families to wait.

“Families are feeling it at the bowser, in the supermarket, when they pay their power bills, and when they renovate their homes,” said Mr Taylor.

“Labor went to the election promising to ease the cost of living, reduce electricity costs and increase real wages, but it’s only getting harder for Australian households, and the government has offered no real plan to address these challenges.

“We haven’t seen inflation this high in more than three decades. The government can make choices to address these pressures. The Treasurer should avoid being complacent and outline a proactive plan to address inflation.”

Slightly better than feared

Prior to today’s ABS data, economists speculated that anything above 6.3 per cent could force the RBA to raise interest rates by a huge margin at its next meeting on Tuesday.

The figure came in lower than that, but not my much.

“A big upward surprise in today’s Q2 CPI data for Australia could see the RBA move 75 (basis points) in August, though we think 50 (basis points) is more likely at this stage,” ANZ analysts said.

“We have upgraded our inflation forecasts since we published our detailed preview, and now expect headline inflation to accelerate to 6.6 per cent year-over-year, and (have) trimmed mean inflation to 5.1 per cent year-over-year.

“We think the risks are more balanced for these stronger forecasts given ongoing upside inflation surprises globally.”

ANZ is also reporting that spending fell 17 per cent in the week to July 24.

That’s not unexpected given the increase in home loan interest rates. It’s also not as dramatic as the 29 per cent fall last year when cases of the Delta Covid variant jumped.

“The July dip in ANZ-observed spending was a little sharper than in previous years once we take higher inflation into account, though still within the ‘normal’ range,” analysts from the bank said on Wednesday.

“There’s no cause for alarm yet, but we will be watching consumer spending closely in coming weeks to identify an interest-rate led slowdown.

“Given our forecast of a further 200 basis point hike in the cash rate, we expect to see consumer spending growth slow down by year end.”

Releasing the International Monetary Fund’s July 2022 Economic Outlook on Tuesday, the body’s Economic Counsellor and Director of Research, Pierre-Olivier Gourinchas, admitted that global forecasts had “darkened significantly since April”.

Measuring growth, global gross domestic product (GDP) was forecast to slow from 6.1 per cent in 2021 to 3.2 per cent in 2022.

This was also 0.4 per cent lower than what was predicted in April’s report.

“The world may soon be teetering on the edge of a global recession, only two years after the last one,” Mr Gourinchas said.