Long-term inflationary expectations falling in Australia as housing goes into reverse
There is hysteria in the air today after the Australian Bureau of Statistics released the June-quarter – Consumer Price Index, Australia (July 27, 2022). Journalists are jumping over their keyboards to see who can come up with the most alarming headline and narrative. Me? I am calm. The price pressures will soon enough evaporate given their source. Inflation in the June-quarter 2022 rose to 1.7 per cent, down from 2.1 per cent in the March-quarter. The annualised rate of CPI inflation was 6.1 per cent. The most significant contributors over the year were owner-occupied housing, food, automotive fuel and furniture (the latter being largely due to transport costs). But looking at just the quarter results, we can see that housing is now a negative contributor as major government programs which pushed the boom are gone and interest rates are higher. We can do little to alleviate the rising fuel costs (except make public transport free and work from home) and the food inflation is down to the recent massive floods wiping out crops. That will be a temporary influence. So some of the factors driving the inflation are short-term and the others will be resolved by factors outside our control. But with wage pressures absent and the most reliable indicator of medium- to long-term inflation now falling, it is hard to make a case that the rising inflation is now entrenched. The hysteria is unjustified.