Inflation eased slightly last month, according to new monthly figures from the Australian Bureau of Statistics (ABS), but businesses and economists alike say it may not have peaked yet.
Key points:
- The overall annual inflation rate fell from 7.3% in September to 6.9% in October.
- Economists say inflation may be close to peaking, but not quite there yet, due to the impact of energy prices and flooding.
- The key price increase for the month was in rents, while fruit and vegetables and travel contributed more to the fall in inflation.
The monthly consumer price index (CPI) rose 6.9 percent in the year to October, slightly below the headline inflation rate of 7.3 percent recorded in September.
A large drop in fruit and vegetable prices between September and October was a key factor in the decline, with the annual price increase for this segment falling from 17.4 to 9.4 percent.
Clothing and footwear prices also fell from an annual rate of increase of 7.1% to 5.7%, while at the end of the school holidays, travel price increases eased from 12, 6% for the year to September to 3.7% for the year. until October.
The higher costs are starting to affect Lash and Brow Boudoir and Skin in Melbourne.
Jess Lloyd says that despite higher living costs, customers want to feel good, so they’re budgeting for their personal grooming. (ABC News: Peter Drought)
“I think everyone feels it at this point,” said skin therapist and marketing manager Jess Lloyd.
“Anywhere between 4 and 10 percent [increase] with all the expenses going up, so are the wages.”
The business diversified into e-commerce during the COVID lockdowns, selling skincare products online, and Ms Lloyd said both parts of the business were facing higher costs.
“Our rent and utility bills have gone up, even small things like salon consumables, for example,” he told The Business.
“I know it sounds silly, but fabrics have gone up in price and we use a lot of them in the salon.
“We use skin care in the treatment room and many of our suppliers have had a hard time sourcing certain ingredients throughout COVID, so they’ve also had to raise the prices of their products.
“So it’s been a bit of a snowball effect.”
Jess Lloyd of Lash and Brow Boudoir and Skin in Melbourne says they are doing small increases, “anywhere from a few dollars to $5” on some of their services. (ABC News: Peter Drought)
The company has tried to absorb some of these higher costs, but has also passed some on to its customers.
“We’ve had to look at our prices and we’re going to do some slight price increases … it could be a few dollars to $5,” Ms Lloyd said.
Has inflation peaked?
Ben Kerr, CEO of Eco Outdoor, told The Business that some costs that rose sharply last year were starting to level off, or even fall.
Eco Outdoor CEO Ben Kerr says rising shipping costs have leveled off as supply costs have risen. (ABC News: John Gunn)
“Around this time last year, we had a big shock with our very large increases in shipping, international freight across all markets, so Australia, New Zealand and America, but I think that this has started to moderate,” he said.
“We’re starting to see shipping costs come down significantly, not quite what they were before COVID, but I think those costs have been pushed up a little bit by the increased supply costs, so we’re really seeing that prices are starting to stabilize.”
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His company, which sells outdoor wall and floor materials as well as outdoor furniture, imports much of its product from Europe, where skyrocketing energy bills are fueling inflation.
“Some of our suppliers in Europe have had energy costs of up to 700 percent increases in gas costs,” he observed.
“So we’re starting to see a reduction in shipping costs to Australia, but then an increase in production costs.
“But I think we’ve definitely seen the peak. I would say prices will remain stable.”
Kerr, who has showrooms in Australia and New Zealand as well as the United States, told The Business he expected costs to stay where they were for some time.
“I actually think we’re getting back more to a normal state, in terms of interest rates, you know, with sort of a net cost to the consumer of 5 to 6 to 7 percent,” he said.
“That’s pretty normal historically. So I think we’re getting back to a more stable and sustainable economy.”
Capital Economics’ Marcel Thieliant said “the data suggest that inflation is about to peak”, although it may not be quite there yet, as flooding could lead to a further rise in oil prices. fruits and vegetables.
“In addition, today’s release does not include any updates to utility rates,” he wrote.
“The ABS will only include those from the December figures, which will be published alongside the fourth quarter data at the end of January.
“Electricity prices rose 15.6% quarter-on-quarter last quarter, but the CPI showed a much smaller increase of 3.2% because most of the rise was offset by government rebates .
“We assume that these cuts will have largely progressed this quarter and increased 10% quarter-on-quarter in electricity rates.”
BetaShares chief economist David Bassanese said the data strengthened the case for the Reserve Bank to hold off on raising rates after an expected hike next week.
“Assuming the RBA raises rates by 0.25 of a percentage point next week, it will represent a substantial 3 percentage point rise in the cash rate over the year, the biggest change in eight months in the cash rate since the cash rate target was set. implemented 32 years ago!” he pointed out
“At a time when home loan affordability is already approaching its worst levels in 30 years (when mortgage rates were around 15%), wage growth and inflation expectations remain contained and the US economy faces a growing risk of recession, suggests the RBA can afford to tread a little more cautiously when raising rates in the new year.”
Open borders help reduce inflation
The ABS said about half of the fall was due to an annual reweighting of the basket of goods and services as measured by the CPI.
The lifting of COVID travel restrictions, both domestic and international, over the past year has seen a dramatic increase in the weight of travel services in the index.
“The update of pesos in October saw several changes, the most significant of which was international travel, which increased from 0.1% of the CPI basket to 1.9%,” he said Michelle Marquardt of the ABS.
If the weighting had remained the same as in the September figures, annual inflation would have been 7.1 percent in October instead of 6.9 percent.
The main price increase between September and October was that of rents, which experienced annual growth of 3.5 percent, up from 2.9 percent.