construction and fuel
New dwellings and automotive fuel led to the increase in inflation. Image – Canva.
  • Highest the inflation rate has been since 2000
  • In light of this, the Reserve Bank may raise the cash rate as soon as next week

A strong economy, very low employment coupled with supply chain strains, excaburrated by the ongoing conflict in Ukraine, has seen inflation rise to 5.1% over the past year – the highest since the GST was introduced in 2000.

During the March quarter, inflation rose by 2.1%.

The Australian Bureau of Statistics (ABS), which measures inflation using the Consumer Price Index – essentially a weighted basket of various goods and services consumed by Australian households, released the data this morning.

This is now fueling speculation the Reserve Bank of Australia (RBA) will raise the cash rate much sooner than it anticipated – could be as soon as during its monthly meeting next Tuesday.

ABS’s Head of Price Statistics, Michelle Marquardt, noted the most significant contributors to the rise in the CPI during the March quarter.

While the soaring price of automotive fuel may be the most obvious sign of inflation – after all it rose by 11% during the March quarter – but new dwellings and tertiary education also contributed, increasing by 5.7% and 6.3% respectively.

“Continued shortages of building supplies and labour, heightened freight costs and ongoing strong demand contributed to price rises for newly built dwellings,” said Ms Marquardt.

“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.”

Michelle Marquardt, ABS

“The CPI’s automotive fuel series reached a record level for the third consecutive quarter, with fuel price rises seen across all three months of the March quarter.”

Food increased, in part due to higher transport costs, with beef (7.6%) and vegetables (6.6%) rising the most across this sector.

What does this mean for property?

While existing dwellings and land aren’t included in inflation figures, new dwellings are.

“Strong demand combined with material and labour supply disruptions throughout the year resulted in the highest annual inflation for new dwellings since the introduction of the GST,” noted Ms Marquardt.

These factors have caused many builders to collapse over the past year such as Pindan and Probuild.

As inflation has soared to a level above the Reserve Bank’s inflation of target of 2-3% per annum, the cash rate is likely to increase as soon as next week – the first time it has changed since November 2020.

It will also be a pre-election surprise, with the same narrative occurring just before John Howard lost the election to Kevin Rudd in late 2007.

The cash rate rise will further lift interest rates, increasing mortgage repayments for households.

The impact this will have on property prices is yet to be seen, however experts expect at the very least a small decline.

Certainly will be interesting to see how the rest of the year pan out.

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