How Australia’s inflation stacks up against the rest of the world

Rising costs have hit many Australian households this year but the nation’s performance globally is better than you may think | Here’s where we rank

Australia appears to have escaped the worst of the global inflation surge, although some risks remain that prices will push higher again.

The latest Bureau of Statistics monthly Consumer Price Index Indicator – showing annual inflation fell from 7.3 per cent in September to 6.9 per cent in October – ranks Australia among the world’s lower-inflation economies of the past year.

The October reading was below market forecasts and is good news for home loan borrowers as it suggests future Reserve Bank interest rate rises may be limited.

Figures from The Economist Intelligence Unit and Haver Analytics show that among 42 countries, only 14 have lower inflation than Australia, and the majority of these are in Asia.

Lockdown-hit China’s annual inflation is just 2.1 per cent, Japan is 3.8 per cent and South Korea 5.7 per cent.

In contrast, Britain’s inflation is 11.1 per cent, the Euro area is 10.6 per cent and the US is 7.7 per cent, while at the extreme end Turkey is 85.5 per cent and Argentina 88 per cent.

BetaShares chief economist David Bassanese said Turkey and Argentina were “printing money to fund their deficits”, and European countries had suffered more of an energy shock than Australia.

“Energy costs have gone up a lot more in Europe because more of their energy used to come from Russia,” he said.

Mr Bassanese said the US faced stronger wage growth than Australia, where wage increases so far had been “fairly glacial”.

“With our slowing economy and unemployment drifting higher, it’s hard to see wages growth accelerating a lot further,” he said.

“I think inflation growth has peaked in Australia.

“We are starting to see consumers buckle under the weight of higher interest rates and lower house prices.”

However, rising energy prices remain an inflation risk, after the recent federal budget forecast electricity prices to jump 56 per cent over two years.

KPMG chief economist Brendan Rynne said the cost of utilities was not reflected in the October inflation figures, creating upside risk.

Fast-rising consumer prices have been a global issue during 2022.

“The ABS data shows while there has been a softening in the annual inflation rate across 10 price categories – with some falls in annual growth rates being quite large, specifically in fruit and vegetables and holiday travel and accommodation – seven price categories still saw annual inflation continuing to rise between September and October,” Dr Rynne said.

“The impact of upstream cost pressures being passed through the broader economy is not clear in the data.

“Overall, this set of numbers will provide a degree of comfort to the RBA, which is expecting inflation to peak at around 8 per cent at the end of this year,” he said.

Dr Rynne said KPMG expected the Reserve Bank of Australia to increase interest rates by 0.25 of a percentage point in December and again in early 2023.