Rate rise more likely after inflation jump

Economists expect an interest rate rise is more likely this year after an unexpected jump in the rate of inflation in the December quarter.

The Australian Bureau of Statistics said the consumer price index jumped 1.3 per cent in the quarter with significant rises in the cost of new dwellings and petrol prices.

This took the annual inflation rate to 3.5 per cent and beyond the Reserve Bank’s two to three per cent target.

This compared with economists’ forecasts for a rise to 3.1 per cent and three per cent as of the September quarter.

“Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses and apartments.” ABS head of prices statistics Michelle Marquardt said

“Fuel prices rose again in the December quarter, resulting in a record level for the CPI’s automotive fuel series for the second consecutive quarter.”

Annual underlying inflation – which smooths out wild price swings and is more aligned to interest rate decisions – rose to 2.6 per cent, up from 2.1 per cent in the September quarter.

Ms Marquardt said this was the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods.

Economists had expected a more modest rise in annual underlying inflation to 2.4 per cent.

“While some of these cost pressures could still be seen as transitory, we expect the RBA will strike a more hawkish tone at next week’s meeting,” BIS Oxford Economics senior economist Sean Langcake said.

“A rate rise in 2022 is now more likely in light of these data.”

The RBA will hold its first board meeting of the year on February 1.

 

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

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