Australian CPI and Wages Update
Inflation continues to hold strong, though the first quarter saw some modest easing. The ripple effect of global cost pressures lessening is being felt on the home front, impacting the prices of domestic goods. Meanwhile, the cost of market services and rent remains high. We've seen a dip in short-term inflation expectations, while medium- and long-term forecasts align neatly with RBA targets.
Wage and labor cost growth in Q4 2022 potentially overstated, driven by a competitive labor market and robust inflation. Unit labor costs hit highs unseen for decades amidst weak productivity growth. However, early signs from Q1 2023 hint at solid wage growth, with moderation on the horizon. Experts foresee wage growth peaking between 3.75 and 4 percent within the year.
The Consumer Price Index (CPI) climbed by 1.3% in the first quarter, a step down from the peak of the previous quarter, yet still marking the highest level since 1990. High inflation permeates various items, despite some components exhibiting signs of easing. Global cost pressures have taken the edge off goods price inflation, although domestic costs have somewhat counterbalanced this. Housing and consumer durables inflation have lessened, and grocery prices have grown at a slower pace. In line with international trends, inflationary pressures overall are predicted to continue their gradual slowdown.
Services inflation stays robust, driven by pressures on input costs and hearty demand. Market services experienced significant price hikes, with inflation reaching a peak unseen since 1990. The culprits behind the climbing prices included labor costs, materials, and transportation expenses. Particularly impacted were insurance and financial services, owing to increased insurance premiums in response to a rise in claims linked to natural disasters. While some sectors enjoyed eased inflation, domestic holiday travel and accommodation maintained high prices, while international holiday travel and accommodation costs dropped.
Due to a tight rental market, rental prices saw an uptick, particularly in Brisbane and Perth. Both gas prices and electricity prices increased, mostly due to higher wholesale costs and the gradual removal of rebates. Administered prices, barring utilities, also recorded significant increases. Although electricity and gas prices are expected to keep rising, the Energy Price Relief Plan aims to curb these increases.
The Australian Consumer Price Index (CPI) signals a slackening of inflationary pressures, with the year-ended rate dropping in March. Short-term inflation expectations also saw a downturn but remain above the central bank's target. Wages growth in the December quarter was robust, marking the highest rate since 2013. Indicators suggest the March quarter maintained this solid growth in wages, with forecasts predicting stabilization and moderation. Real incomes took a hit in the December quarter, notably among higher-wage earners, as growth in labor income lagged behind the hike in consumer prices.
Source: https://www.rba.gov.au/publications/smp/2023/may/inflation.html