In Australia, the inflation rate has declined from its 33-year high. This is the lowest cost increase for over a calendar year.
Inflation in Australia decreased by 1.4% during the first quarter 2023. The CPI registered an annual rate 7 percent over the 12 months prior to March 2023. This is lower than the 7.8 percent pace that was recorded in the preceding quarter.
Inflation drops to 7.0 percent
As a result, SMEs in Australia may face higher prices for goods and services. The CPI is expected to increase by 1.4 percent in the third quarter of 2023 and by 7.0 percent over the course of the entire year. If SMEs are unable to pass on these costs, they may see their profits suffer. The slight decrease in inflation since the previous quarter could offer some relief to SMEs when it comes to cost management.
ABS’s head of price statistics, Michelle Marquardt said that “CPI inflation slowed down in the March quarter. The quarterly increase was the lowest since December 2020.” Prices continued to increase for many goods and services but they were lower than in previous quarters.
Gas and household fuels increased by 14.3%, and domestic holiday travel and accommodations rose by 4.7%. The lower CPI increase suggests that the recent price surge may have been tempered. It is also an important indicator of inflationary pressures in the country.
The Medicare Safety Net and GPs’ consultation fees are reset in March, which is when prices for hospital and medical services usually rise. In January this year, some private health insurance rates increased. This added to the rise in prices for hospital and medical services.
The indexation of tertiary education is also done at the beginning of each year. The index showed an increase in strength in the tertiary sector as the changes to student contribution bands, fees and other charges introduced in 2021 under the Jobs-ready Graduating Package have continued to be reflected in the index.
Prices of household fuels and gas are on the rise
Prices for household fuels and gas have increased in all eight capitals, but Melbourne has seen the largest increase of 22,7%. Major events like the war in Ukraine or unplanned power outages over the last year were cited as reasons for the increase.
Increase in domestic accommodation costs
The demand for domestic accommodation increased due to the school holidays and return of major events. This led to price increases. Domestic airfares, however, fell slightly to offset the recent increases.
Food prices on the rise
Fruit, vegetables, snacks and confectionery prices continue to increase. Snack products rose due to potato shortages caused by wet weather in important growing regions, and to higher prices for edible oil and packaging material. Fruit prices increased due to the weather conditions in apple and avocado-growing regions in late 2022.
Offset of international holiday travel costs
After recent increases, some destinations are now entering their off-peak season.
Retail price falls
Retailers have been reducing prices on furniture, small and large appliances, clothing, and other items.
RBA interest rate decision approaches
The core inflation rate also fell below expectations, which indicates that another rate hike is not necessary. Investors responded by reducing their expectation that the Reserve Bank of Australia will raise rates on May 2, after 10 hikes in the past, including an April pause.
Dylan Zhang, ASX Equities analyst at online brokerage platform Stake says that the RBA’s decision to freeze interest rates last week has given the RBA more time to assess the effects of rate increases.
The RBA paused interest rates last month to give it more time for the central bank to evaluate the effects of the rate increases. The headline inflation rate of 7 percent today is higher than expected at 6.9 percent CPI, but it’s still below the 7.8 percent figure from the last quarter. This supports the idea that inflation is at its peak, as the market has reacted positively.
The biggest price contributors are education and health as premiums increased. Rents and housing prices have continued to rise, but it is actually higher interest rates that are driving this trend as mortgage holders pass on their increased repayments. Rent inflation is also a result of other factors, including low supply and high migration. This problem cannot be solved by raising interest rates alone.
Zhang says that while the headline inflation rate is still high, higher rates are likely to continue for some time. He says that companies with “established revenue streams or strong pricing power are likely to be better able to weather a period of high rates.”
“Last weeks’ unemployment data showed that job creation was above expectations. This suggests there may still be a case to raise rates by the RBA. The RBA is becoming more dovish and the 50% drop in First Republic Bank’s stock overnight indicates that fears of a banking crises could be reignited. According to the market’s reaction today, investors seem to be betting on another pause for May.
In the short-to-medium term, companies that have established revenue streams or strong pricing power are more likely to be able to weather a storm in an era with high rates. It’s also important to keep in mind that the markets are always looking forward, and many investors will be looking for growth stocks, anticipating a future rally.