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However, home builders are encouraged by the first signs of slower increases in the costs of labour and raw materials.
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RBA rise ‘more likely’ after 7.8 per cent CPI result
27 January 2023
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10 minute read
The three-decade high inflation figure of 7.8 per cent for 2022 has increased the chances that the RBA will lift interest rates again at its first meeting this year on 7 February, according to CPA Australia.
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However a slower rise in the cost of new homes was welcomed by Master Builders Australia, which said it was welcome relief from record increases last year due the spiralling prices of labour and materials.
New home prices rose 1.7 per cent during the December quarter against overall inflation of 1.9 per cent, and Master Builders acting CEO Shaun Schmitke believed it marked a turning point.
“After a period of high inflation off the back crippling labour shortages and high material costs, we are starting to see some easing in the cost of building a home,” he said.
“As state and federal governments continue to roll out incentives to assist housing affordability, we expect this will help reduce out-of-pocket expenses for Australians and further slow the rate of inflation for new dwellings.”
But he said there was a role for government in getting housing construction back on track.
“Non-discretionary costs such as electricity, labour, land supply and material costs are continuing to have a negative impact on the sector,” he said.
“The cost of doing business in the building and construction industry needs to be addressed with bottlenecks in our migration system, unnecessary regulatory burdens on builders and a lack of land supply.”
The 7.8 per cent annual inflation figure for 2022 — the highest since 1990 and 0.5 percentage points above the year to September, was driven over the course of the year partly by a rise in the cost of new dwellings by 17.8 per cent.
However, steep quarterly increases in holiday travel and accommodation (+13.3 per cent) and electricity (+7.6 per cent) were two of the most significant contributors to a 1.9 per cent rise for the three months to the end of December.
“This is the fourth consecutive quarter to show a rise greater than any seen since the introduction of the GST in 2000,” ABS head of prices statistics Michelle Marquardt said.
“Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares.”
CPA Australia senior manager business and investment policy Gavan Ord said pent-up demand helped sustain holiday spending and that meant the RBA, at its next meeting on 7 February, was more likely to raise again.
“Despite rising interest rates, our members are telling us that consumer spending is yet to significantly fall,” he said.
“Christmas sales appear to have held up despite the price rises. It's no surprise people were willing to splurge over the festive season after two years of lockdowns and restrictions due to COVID-19.
“It’s too early to say inflation has peaked. The high inflation figures have increased the likelihood the Reserve Bank will increase rates at the first meeting for 2023.”
He said the impact of earlier interest rate rises had yet to be fully felt.
“The hangover has yet to kick in for businesses, but they must be prepared. One of the first signs will be declining sales of discretionary products and services.”
The ABS said rising electricity prices would be offset to some extent by state government subsidies, but the cost of meals out and takeaway foods continued to increase — up 2.1 per cent for the quarter — as dining establishments passed through rising costs for inputs such as ingredients and labour.
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