The five biggest drivers of the cost-of-living crunch
Fruit prices continued to grow in the double-digits in the year to the end of December, rising by 12.6 per cent, but at a slower pace than in the 12 months to September 30 as inflation in the fresh produce category started to ease.
Vegetable prices, which climbed 5.7 per cent, were among those that recorded the lowest increases as bad weather conditions that affected crops earlier in 2022 started to ease.
In good news, Harvey said there was likely to be a “natural slowdown” in the rate of food inflation more broadly this year.
“Some of the drivers of high food production costs have eased,” he said.
Housing is one of the key drivers of inflation, making up nearly a third of the total Consumer Price Index basket that the Australian Bureau of Statistics uses to calculate the rate. Over the last year, inflation in housing grew by 10.7 per cent across capital cities.
That was driven by a 17.8 per cent rise in the cost of new homes over 2022 – the highest rate since that record started in 1999.
EY chief economist Cherelle Murphy said that was driven by a combination of supply issues and heightened demand.
“With housing, we’re really talking a lot about the sort of slow movement of goods,” she said, noting supply pressures were starting to ease as the data for the December quarter showed.
“Things like new dwelling costs didn’t really get much higher. They had risen a long way before that, but they didn’t keep rising,” she said.
While a smaller number, annual growth in rents of 4 per cent was the highest in more than a decade. That has been spurred by ultra-tight rental markets across the country, with record-low vacancy rates in most parts of Australia.
Another major factor driving up housing inflation was pricier power bills. Electricity prices increased by 11.7 per cent last year, while gas hit an 11-year high of 17.4 per cent.
It wasn’t just new homes and renting that got more expensive. Inflation for furniture and carpet, at 10.4 per cent and 13.1 per cent respectively, reached highs not seen since the 1980s.
Murphy said this tied in with new home construction.
“When you’re building a house you need stuff, and a lot of that stuff is imported – bathroom fittings and carpets,” she said.
“These things were really slowed down and became more expensive because we had supply chain blockages at the same time that we had strong demand.”
Along with pricier furnishings came more expensive appliances. Inflation for large items such as fridges and washing machines rose 10.2 per cent, while the cost of smaller appliances rose by 9 per cent – aside from earlier in 2022, they were the largest increases in those categories since 1975.
Again, Murphy said, those supply chain blockages, which were not helped by COVID-19 lockdowns in major Chinese shipping districts, came as consumer demand was raging.
“Those big-ticket items were the sort of things that of course, when finance is cheap, you spend money on,” Murphy said.
“It was sort of the perfect storm, in the sense that you had both the demand side of the equation picking up and supply pulling back.”
Getting around is costing more, too.
A trip to fill up the tank hurt the hip pocket 13.2 per cent more in December than it did 12 months ago.
CommSec chief economist Craig James said higher petrol prices reflected a stronger US dollar against the Australian dollar, and high global oil prices.
“The latter was driven by OPEC+ production restrictions and the war in Ukraine,” he said.
Petrol prices fell by 4 per cent in the three months to September last year after the federal government temporarily cut excise on fuel from about 44 cents a litre to 22 cents, James said.
While the excise was restored by the end of September, and automotive fuel prices edged up, the ABS said lower wholesale prices flowed through in December.
Tinkering with vehicles also became expensive over the 12 months to December.
Prices for spare parts and accessories revved up 12.7 per cent – the biggest increase since 1981. Maintenance and repairs set consumers back 6.2 per cent more than the year before – the same proportion as in the 12 months to September, but the biggest mark-up since 1991.
Those taking public transport or hailing a taxi felt the smallest pinch, as urban transport fares inched up 1.8 per cent.
The first summer holiday period without major lockdowns or bushfires saw Australians return to travelling, but that came at a substantial cost.
Inflation for domestic travel and accommodation rose by 19.8 per cent – the biggest increase in 40 years, mainly driven by a large spike in December. International travellers fared little better, with inflation for overseas trips rising by 15.9 per cent over the year.
And our love of our pampered pooches and guinea pigs drove pet inflation to rates not seen since 1982.
Murphy said demand was definitely a factor driving up those prices, but there was also likely to be some wage pressure coming through in the travel segment.
“It’s not only that pick-up in activity and the ability to supply, but then the inability to find the people necessary at those wages. So I think there might have been a bit of wage pressure in there too,” she said.
While Murphy believes inflationary pressure on the goods side of the economy might be behind us, pressure on the services side might leave us with higher inflation into 2023.
“Is the services inflation strong enough to cause the overall number to keep rising? It’s probably not, but it’s going to keep it high and it’s going to keep it uncomfortably high,” she said.
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