Inflation jumped to 3.8% in the year to December, from 3.4% in the month before, as strong underlying price growth added to the chance of a Reserve Bank rate hike next Tuesday.
The latest figures from the Australian Bureau of Statistics suggested that Australian households once again face a fight to bring rapidly rising consumer prices back under control.
That battle will now start with a rate hike – the first since November 2023 – at next week’s RBA monetary policy board meeting, according to ANZ economists, who changed their call in response to the latest figures.
“We view this as a single ‘insurance’ tightening, not the start of a series of rate hikes,” the ANZ’s head of Australian economics, Adam Boyton, said.
With all four of the major banks predicting a rate rise on Tuesday, the latest data showed that climbing housing costs in the year to December, and especially power bills, helped drive the unexpectedly high annual inflation figure.
There was a 21.5% surge in electricity prices as subsidies rolled off in Queensland and Western Australia. That meant inflation ran the hottest in Brisbane, at 5.2% in the year, and Perth, at 4.4%.
There was a 3.9% annual rise in rental costs, which was a slight improvement from the 4% recorded the month before due to “stable vacancy rates in most capital cities”, the ABS said.
Cost of living pressures were evident in supermarket prices, where food and non-alcoholic drinks lifted by 3.4% in the year to December, the ABS data showed.
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Jim Chalmers was quick to deny that the government’s spending was adding to the inflationary pressures, pointing towards a private sector recovery through 2025.
“We understand and we recognise that Australians are still under pressure – we can see that in these numbers today, despite all of the progress that we’ve made in recent years,” the treasurer said.
Opposition leader, Sussan Ley, in a statement said “families are doing everything they can, but under Labor the cost of living is getting worse, not better”.
While the latest headline inflation figures are well above the RBA’s 2-3% target range, they have been temporarily boosted by the rolling expiry of the government electricity subsidies.
Without the impact of the subsidies, power bills would have been 4.6% higher, the ABS said.
The official statistics also showed a nearly 10% annual jump in travel and accommodation prices as costs surged in December, coinciding with the Ashes cricket tour and the start of summer holidays.
Removing the more extreme price moves, however, and the central bank’s preferred quarterly trimmed mean measure still lifted by a substantial 3.4% through the year, from 3% in the September quarter.
That was higher than anticipated by most economists, and after last week’s strong jobs figures have firmed the prospect of higher rates.
“All up, it appears to be game, set and match for a rate rise at the February policy meeting,” said David Bassanese, chief economist at BetaShares.
The probability of a rate hike next week jumped to 75% in the wake of the inflation report, from 60% beforehand, according to NAB.
Reflecting these shifting expectations for rate moves, the Aussie dollar jumped back above US70 cents after the release of the ABS data, if only briefly.
