In the December 2023 quarter, there was a 0.6% increase in the Consumer Price Index (CPI), leading to an annual rise of 4.1%, as reported by the Australian Bureau of Statistics (ABS).
The most significant contributors to the December quarter rise were Housing (+1.0 per cent), Alcohol and tobacco (+2.8 per cent), Insurance and financial services (+1.7 per cent), and Food and non-alcoholic beverages (+0.5 per cent).
Housing was driven by New dwellings purchased by owner occupiers (+1.5 per cent), Rents (+0.9 per cent) and Utilities (+0.6 per cent).
Anneke Thompson, Chief Economist, CreditorWatch: “Today’s release of the December quarter CPI figures will provide great relief to both home and business borrowers, as it all but assures them that the Reserve Bank of Australia (RBA) will keep rates on hold at next Tuesday’s Board meeting. Overall inflation fell sharply from 5.4 per cent to 4.1 per cent, indicating that the monetary policy measures the RBA has taken to date are now working well to bring down inflation. Coupled with flailing retail sales (down 2.7 per cent over the month of December) and an unexpected decrease of 65,000 of the number of people employed in December’s unemployment figures, the RBA has next to no reason to apply further pressure to a clearly slowing economy.
“While falling inflation is very positive news for the RBA and borrowers overall, operating conditions for businesses over the next six months will remain very challenging. The lag effect of monetary policy impacts is now being felt, and business confidence and conditions are slowing sharply as we move further in to 2024. It is unlikely confidence will return to consumers until there is any real sign of upcoming interest rate cuts, which are still unlikely to occur before the third quarter of this year. An unemployment rate rising more sharply than forecast could convince the RBA to bring cash rate cuts forward in to the second quarter of 2024, and slowing business conditions means there is an ever increasing possibility this could happen.”
Michelle Marquardt, ABS head of prices statistics, said “The CPI rose 0.6 per cent in the December quarter, lower than the 1.2 per cent rise in the September 2023 quarter. This was the smallest quarterly rise since the March 2021 quarter.
“While prices continued to rise for most goods and services, annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.”
“Higher labour and material costs contributed to price rises this quarter for construction of new dwellings. The 1.5 per cent increase is slightly higher than the 1.3 per cent rise in September 2023 quarter,” Ms Marquardt said.
Rental prices rose 0.9 per cent for the quarter, following a 2.2 per cent rise in the September quarter. The rate of quarterly growth was moderated by changes to Commonwealth Rent Assistance. Excluding the changes to rent assistance, rental prices would have increased by 2.2 per cent in the December 2023 quarter.
Tobacco rose 7.0 per cent, following the introduction of the 5 per cent annual tobacco excise indexation and biannual Average Weekly Ordinary Time Earnings increase, which were both applied on 1 September 2023.
Insurance had a strong quarterly movement of 3.8 per cent, following the 2.8 per cent rise in September 2023 quarter.
“The increase in Insurance was due to higher premiums across motor vehicle, house and home contents insurance. Over the past twelve months Insurance rose 16.2 per cent, making it the largest annual rise since March 2001,” Ms Marquardt said.
Food and non-alcoholic beverage prices rose this quarter, although the rise was the smallest since September 2021. The rise was driven by Meals out and takeaway foods (+0.9 per cent), Food products not elsewhere classified (+1.9 per cent), and Bread and cereal products (+1.9 per cent).
Partially offsetting the quarterly rise were price falls for Meat and seafood (-1.2 per cent), and Fruit and vegetables (-1.2 per cent).
“Meat and seafood prices fell this quarter due to increased supply leading to price drops for Lamb and goat of 12.1 per cent, and Beef and veal of 1.5 per cent,” Ms Marquardt said.
Annual inflation measures
Annually, the CPI rose 4.1 per cent, with Housing (+6.1 per cent), Food and non-alcoholic beverages (+4.5 per cent), and Alcohol and tobacco (+6.6 per cent) contributing the most.
Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI. Annual trimmed mean inflation was 4.2 per cent, down from 5.1 per cent in the September quarter.
This is the fourth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December 2022 quarter.
Monthly CPI indicator
Today the ABS also released the monthly CPI indicator for December, which rose 3.4 per cent in the 12 months to December, compared to a rise of 4.3 per cent in the 12 months to November.
The most significant contributors to the rise were Housing (+5.2 per cent), Food and non-alcoholic beverages (+4.0 per cent), Alcohol and tobacco (+6.8 per cent), and Insurance and financial services (+8.2 per cent).
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