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Observers urge caution and government action because the latest CPI figure contains as much bad news as good.
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False dawn of CPI slowdown conceals dangers for business
27 April 2023
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10 minute read
A fall in the annual inflation rate to 7 per cent is unlikely to halt RBA rate increases and businesses – especially those that rely on discretionary spending – remain vulnerable, say economic observers.
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The headline CPI figure fell from its 30-year high of 7.8 per cent over 2022 thanks to a slowdown in price rises during the March quarter to 1.4 per cent, the lowest since December 2021.
Treasurer Jim Chalmers said inflation was still “unacceptably high” although price pressures had started to ease.
“The drivers of the moderation in inflation were lower fuel prices from previous war‑driven highs, easing vegetable prices from the floods and easing growth in the cost of new dwellings,” he said.
“This confirms the importance of a responsible and methodical budget that provides security in uncertain times, sets Australia up for the future, and doesn’t add to price pressures.”
Deloitte Access Economics partner David Rumbens said the result was consistent with inflation now receding and “confirms we are past the peak”.
“The downward path has commenced but inflation is still not expected to reach the RBA target band for some time,” he said.
“In relation to next week’s RBA decision, today’s release was very much in the grey zone, not providing a strong guide either way.”
CreditorWatch chief economist Anneke Thompson said the annual inflation rate would remain a concern for the RBA and “is likely to result in a further increase to the cash rate” next week.
She said a slowdown in price increases for goods – helped by decreases in the cost of clothing and footwear, and furnishings and household equipment – was offset by a rise in services inflation to 6.1 per cent, up from a 5.5 per cent increase over the year to December 2022.
“Higher energy costs, a lack of staff driving up wages and continued demand for travel, education and rental properties are largely behind the increase in services inflation,” Ms Thompson said.
“Many service providers have been forced to pass on the input costs of energy and wages on to their customers, particularly in the restaurant and hospitality sector.
“A likely further increase to the cash rate in May will also impact businesses providing discretionary goods and services more acutely, as consumers will continue to pull back spending in these areas.”
The ABS data showed the most significant price rises were medical and hospital services (up 4.2 per cent), domestic travel and accommodation (up 4.7 per cent), tertiary education (up 9.7 per cent) and gas and other household fuels (up 14.3 per cent).
CPA Australia senior manager of business and investment Gavan Ord said businesses should factor further volatitily into their planning.
“Our members are telling us that many businesses are still struggling to respond to this challenging environment,” he said. “We are facing an unpredictable environment and businesses should not assume rate rises or inflationary pressures are over.”
He said the budget would be a chance for the government to help.
“Inflation remains high and previous rate rises will continue to have an effect. We want the government to focus on opportunities to improve business resiliency. Targeted support measures are critical, including incentives for small businesses to seek advice from accountants.”
Master Builders Australia chief economist Shane Garrett welcomed the inflation slowdown and the “significant deceleration in new home purchase costs” which had the potential to lower inflation more broadly.
But the figures were much worse when it came to rental costs where a 4.9 per cent surge meant they were rising more quickly than at any time since 2009.
“Higher interest rates have contributed to worsening rental costs as many landlords have passed mortgage interest increases on to tenants,” said Mr Garrett.
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