Australia’s Consumer Price Indicator Hints At Continuing Inflation Rise

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Australia’s inflation rate is at its all-time high, brought about by global factors like the pandemic and the recent war between Russia and Ukraine. But according to the Reserve Bank of Australia (RBA), the inflation level slightly improved in August from the previous month.

The new monthly measure indicated steep price drops on petrol. The monthly indicator of consumer prices (CPI) was at 6.8% in August, a decline from July’s 7.0% though still higher than the running quarterly inflation of 6.1% in June.

David Gruen, an Australian statistician, mentions, “The slight fall in the annual inflation rate from July to August was mainly due to a decrease in prices for automotive fuel. This saw the annual movement for automotive fuel fall from 43.3% in June to 15.0% in August.”

However, inflation in fruits and vegetables has more than doubled to 18.6%, caused by the flooding that hit the farming sector. Economist Saul Eslake explains that inflation rates are surprisingly high today because the prices of commodities in the past twenty years have generally trended downwards.

When consumer durable goods manufacturing was moved to other developing countries, prices increased. But consumers didn’t notice the prices going up since these items were infrequently purchased. It was only during the pandemic that people began shopping for big-ticket items like home entertainment systems and gym equipment when they realised how expensive these are now.

“People couldn’t go to the cinema, so they bought better entertainment equipment. People were spending more time at home and decided to renovate. They didn’t want to catch public transport, so they bought cars. There was all this demand-shock, and governments threw a lot of money at people, meaning they could afford to buy these things.” Eslake adds.

Ordinary Australian consumers are those who are affected by this change. Many have experienced difficulties prioritising what they purchase, leading to lower living standards and a decline in average wages.

The federal government predicts that inflation will peak at 7.75% by December 2022 and is expected to decline consistently until 2024.

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