27 Jul 2022

Inflation in Australia equals post-GST high with prices rising 6.1 per cent

3:18 pm on 27 July 2022

Inflation over the year to June hit 6.1 per cent, which is the highest level in 21 years, since the GST was introduced in Australia.

Residents stock up on provisions at a shopping centre in Sydney on July 17, 2021, after authorities ordered new restrictions as a weeks-long lockdown failed to quash an outbreak of the Covid-19 coronavirus. (Photo by Steven Saphore / AFP)

Shoppers in a Sydney supermarket. There has been a 7.3 percent jump in prices for fruit and vegetables and a 6.3 percent rise for meat and seafood, latest figures show. Photo: AFP

The 10 percent tax on most goods and services, introduced on 1 July, 2000, pushed annual inflation higher, with a peak of 6.1 percent in June 2001.

Without the impact of that tax, Australians have to go all the way back to December 1990 to find a steeper annual level of consumer price increases - inflation was 6.9 percent the year before the "recession we had to have".

The Consumer Price Index from the Australian Bureau of Statistics (ABS) shows prices rose 1.8 percent in the June quarter alone.

However, that was slightly below the March quarter inflation rate of 2.1 percent.

Economists warn that inflation may not have peaked yet, but is perhaps getting close to the top and may not hit the levels already being seen in the US or UK.

"The recent drop in crude oil suggests that automotive fuel inflation will slow sharply over coming quarters," noted Marcel Thieliant from Capital Economics.

"And the drop in global food prices suggests that food inflation will peak before long.

"Admittedly, with both wholesale gas prices and wholesale electricity prices around five times their 2021 average, utilities inflation will pick up."

That could provide some modest respite for mortgage borrowers struggling with rapidly rising interest rates.

"While [annual] inflation accelerated in the second quarter, the increase wasn't as strong as we had expected, which suggests that the RBA [Reserve Bank of Australia] may opt for another 50-basis-point rate hike at next week's meeting rather than the 75-basis-point hike we're forecasting," Thieliant said.

Which prices rose the most?

The ABS said the most significant price rises over the quarter were for new dwelling purchases (+5.6 percent), fuel (+4.2 percent) and furniture (+7 percent).

"Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings," the head of price statistics at the ABS, Michelle Marquardt, said.

"The CPI's automotive fuel series reached a record level for the fourth consecutive quarter. Fuel prices rose strongly over May and June, following a fall in April due to the fuel excise cut."

The increase in food and grocery prices that many households have felt was also apparent in the numbers.

Overall, food and non-alcoholic drinks climbed in price by 2 percent over the quarter and 5.9 percent over the year to June.

Some of the biggest increases over the past year were a 7.9 percent rise for non-alcoholic drinks, a 7.3 percent jump for fruit and vegetables, a 6.3 percent rise for meat and seafood, a 6.3 percent jump in the cost of bread and cereals and a 5.2 percent rise in retail dairy prices.

One of the biggest jumps in grocery prices, though, was for consumable household products, such as detergents or toilet paper.

The price rises were much more modest for most services, with health costs up just 2.4 percent over the past year, insurance and financial services up 3.4 percent and communication costs flat.

Government intervention resulted in some services prices falling over the quarter, with child care down 7.3 percent as the full effect of subsidies for additional children came through.


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