Inflation has hit 7.8% over the last year – so why aren’t Australians running for the hills? | Greg Jericho & More Trending News


It says a bit about how the economic system (each right here and round the world) is in a really completely different place to a year in the past when figures displaying inflation is rising at 7.8% – the quickest since simply earlier than the Nineties recession – is met with some optimism that the worst is behind us, reasonably than having everybody run screaming for the hills.

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The highest inflation development for 32 years was pushed by a giant uptick in costs in the month of December. The month-to-month inflation figures, which the Bureau of Statistics additionally launched yesterday, confirmed that costs in the month of December alone rose 1.6%.

So given such sharp will increase, why ought to we be extra sanguine than panicked?

The predominant purpose: when you unpick the numbers, you see that for the first time since 2020, the worth of discretionary gadgets rose sooner than the worth of non-discretionary ones (ie these you possibly can’t keep away from paying):

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In the December quarter, the common worth on discretionary gadgets (excluding tobacco) rose 2.7%, in contrast with 1.3% for non-discretionary gadgets.

Similarly, the worth of companies rose sooner than that of products for the first time in two years. The quarterly development of products costs has now fallen 2.9% in the December 2021 quarter to 1.6% in the last three months of 2022.

That suggests a variety of the worldwide and home provide points are starting to clear up, and we’re not seeing the irregular issues that have been occurring in 2021 when you would need to wait months to get gadgets purchased from abroad.

We also can take some consolation from what particular person gadgets are largely driving inflation. In the December quarter, 15 gadgets accounted for 77% of all the development in inflation, and the largest – by a way – was the worth of home holidays. The price of holidays, each right here in Australia and abroad, accounted for 1 / 4 of the whole enhance in inflation in the December quarter.

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That just isn’t as a result of everyone seems to be so flush with money that we’re going mad and jetting off to all elements of the globe and nation. Rather, it’s a reflection that we have now gone from basically no holidaying to rather more home holidaying than in the previous.

When we have a look at worldwide short-term arrivals and departures, it’s clear the tourism market is massively completely different from what it was earlier than the pandemic:

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This just isn’t one thing the RBA can actually have an effect on. Yes, larger rates of interest will scale back the capacity to go on holidays, however issues are so irregular proper now that costs are doing bizarre issues – issues that shall be unlikely to proceed.

The similar may be mentioned for video games – which noticed a 5.5% enhance in costs in the previous year. Given that the costs of video games normally fall round 1.3% every year, it’s clear a level of wackiness is happening proper now. Despite Australians on common solely spending 0.6% of their weekly expenditure on video games and hobbies, the enhance of their costs accounted for 3.1% of all the inflation in the December quarter.

That made for some more-expensive-than-expected Christmas presents:

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This doesn’t imply that there was no ache in these costs.

Discretionary solely means that you would be able to keep away from paying, not that you just did. Holidaying and shopping for video games and toys are much less discretionary actions in December than normal, so it might not be a shock if bank cards round the nation received a giant exercise.

The enhance in the worth of rents can be persevering with to stream by means of in the inflation numbers. Because the lease costs in the CPI accounts for all rents, not simply the new ones, they could be a bit sluggish to maneuver. But they’re shifting now.

In all capital cities rental costs are rising strongly, and – in Brisbane and Adelaide – they’re rising at the quickest fee in 13 years.

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The excellent news is the worth of recent dwelling purchases by owner-occupiers seems to be to have peaked. As with rents, this will take some time to stream by means of into the CPI figures, however given home costs have fallen in the last six months of 2022 we must always count on the worth of this class to additionally fall.

Most foods and drinks costs in the previous year additionally rose sooner than general inflation. Milk alone rose 18%, whereas bread costs have been up 13%. Only the worth of lamb went up by much less in 2022 than it had been rising on common earlier than the pandemic:

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And in fact the ache is felt for everybody, given wages usually are not rising anyplace close to near 7.8%.

The Reserve Bank predicted that wages would develop by 3.1% in the 12 months to December. They really rose by that quantity in the year to September, so even when we assume a better-than-predicted wage development in 2022 of three.25%, that may nonetheless imply actual wages are actually again the place they have been in June 2009:

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After the GFC, actual wages took about two years to get going after which from 2012 to 2020 they slowly grew. All that development is now undone.

Despite the massive enhance in inflation over 2022, the newest figures do counsel a peak has doubtless been reached. Prices are leaping off the again of irregular circumstances and a return of regular behaviours resembling eating out. But as worldwide provide strain ease and we cease seeing large adjustments in how we spend our cash, costs ought to start to begin calming down.

Inflation has hit 7.8% over the last year – so why aren’t Australians running for the hills? | Greg Jericho

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Inflation has hit 7.8% over the last year – so why aren’t Australians running for the hills? | Greg Jericho

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Inflation has hit 7.8% over the last year – so why aren’t Australians running for the hills? | Greg Jericho

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