The Latest CPI Figures Show Inflationary Pressures An Increase
Cost pressures persist in the areas of housing, food, and insurance, with only the Energy Bill Relief Fund rebates preventing electricity prices from being the highest on the list of increases.
The current outlook on cost-of-living pressures in Australia is a complex one.
Overall, the CPI has increased by 3.4 percent in the year leading up to January, marking the lowest annual inflation rate since November 2021 according to the Australian Bureau of Statistics (ABS). Economists had anticipated a rise to 3.6 percent.
The major contributors to this increase are expenses that most individuals cannot easily manage or avoid: housing costs (up by 4.6 percent), food and non-alcoholic beverages (up by 4.4 percent), and insurance and financial services (up by 8.2 percent).
Additionally, as consumer spending decreases on non-essential items, sellers are cutting their profit margins to maintain customer loyalty, leading to a decline in prices for recreation and culture by 1.7 percent, primarily due to a decrease in holiday travel and accommodation costs.
Underlying Inflation at 4.1 Percent
CPI inflation is typically influenced by items prone to rapid price fluctuations like automotive fuel, fruits and vegetables, and holiday travel.
To provide a clearer view of underlying inflation, the ABS excludes these items from the headline CPI, revealing a 4.1 percent rise in underlying inflation during the same period. Underlying inflation has been gradually decreasing since peaking at 7.2 percent in December 2022.
The increased housing costs take into consideration both the rise in new dwelling prices by 4.8 percent over the year, as builders pass on the higher costs of labor and materials, and the 7.4 percent increase in rental prices, reflecting a tight rental market and low vacancy rates across the country.
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Annual electricity prices increased by 0.8 percent during the period, but the ABS notes that the introduction of Energy Bill Relief Fund rebates for eligible households starting July 2023 “has largely offset the rise in electricity prices due to annual price reviews in July resulting from wholesale price increases.
Without the rebates, electricity prices would have risen by 15.3 percent in the 12 months leading up to January 2024,” the ABS stated.
Fresh Food Prices Uninflated
The 4.4 percent rise in annual inflation for food and non-alcoholic beverages was higher than the 4.0 percent in December. Despite weather events, the increase was not driven by fresh food.
| November (%) | December (%) | January (%) | |
| Food & non-alcoholic beverages | 4.6 | 4.0 | 4.4 |
| Bread & cereal products | 8.3 | 7.7 | 7.4 |
| Meat & seafoods | 0.2 | -1.9 | -2.0 |
| Dairy & related products | 6.1 | 5.2 | 5.0 |
| Fruit & vegetables | 0.7 | -2.2 | 1.6 |
| Food products not elsewhere classified | 6.6 | 6.8 | 6.9 |
| Non-alcoholic beverages | 5.4 | 7.1 | 5.7 |
| Meals out & takeaway foods | 5.7 | 5.7 | 5.7 |
The lower-than-expected overall figure is not anticipated to impact the Reserve Bank of Australia’s decision on interest rates.
The bank aims to ensure that inflation aligns with its target range of two to three percent by next year and around 2.5 percent by 2026. Since May 2022, it has increased the cash rate 13 times until reaching a 12-year high of 4.35 percent in November 2023.
During its February board meeting, it noted that while goods price inflation had decreased more than expected, services inflation remained elevated and was expected to decline only gradually.
