Consumer inflation hit 4.5% in March as Australia’s cost of living soars | Australian economy
Both a fruiter and a builder, Anthony Todarello can sell more produce that has skyrocketed in price over the past year than most people.
His family has run the Hampton Fruit Centre, an institution in Melbourne’s Bayside suburb, for six decades. Todarello blames wild weather for driving up the cost of products at a rate rarely seen before.
“Everything is slow to be planted, with the rain [in eastern Australia] just wiping out the crops, pretty much,” he said. “There is a real shortage of supply, regardless of the scarcity of labour.”
While cucumbers, tomatoes and peppers are among the products showing strong increases, green beans at $20 per kg stand out for him.
“We’ve never sold such expensive beans,” Todarello said. “The moment we buy, carry them here and [add the cost of] labor, the cost is probably $17 a kilo, so there really isn’t a lot of headroom. It’s quite difficult right now for everyone.
Food prices will figure prominently when the Australian Bureau of Statistics releases consumer price inflation figures for the March quarter on Wednesday. The so-called headline rate is expected to come in at around 4.5%, not far off the 5% pace last seen in 2008.
The Commonwealth Bank predicts that food prices alone will nearly double the pace of increases in the first three months of 2022 from the December quarter up 1.3%. Gasoline prices, which soared with Russia’s invasion of Ukraine, rose nearly 10% in the quarter and remain elevated even with the temporary 22.1 cent reduction on liter of excise duty on fuel.
Another consequence of rising prices is that the Reserve Bank is running out of excuses not to raise the official cash rate target from its all-time high of 0.1%.
Other central banks, such as in New Zealand, the United Kingdom and the United States, have already acted, and Australia’s first increase in more than a decade will not be far away unless the CPI is surprisingly low. Markets have raised the odds of a May 3 hike, although bank economists are currently predicting the first move will come in June.
While food supply is “an essential service” for Todarello, he has “put everything on hold for a while” in his construction business as the cost of supplies in that industry has also taken off. Wood is in short supply while steel from long-term supplier Steelcon has roughly doubled over the past year.
“It was about $1,300 and something [a tonne] and it’s now…$2,600,” he said. “And they can’t commit to that price.”
The pressure is particularly hitting builders of large numbers of homes, with some choosing to insert clauses to break contracts rather than suffer skyrocketing losses.
“A townhouse project, which may have cost – for the sake of argument – $1.5 million for two townhouses [is] probably going to cost you close to $2 million now,” Todarello said.
Banks, meanwhile, are already increasing fixed-rate lending in anticipation of their own higher borrowing costs.
“Twelve months ago, no one would have predicted that fixed rates would climb this high so quickly, especially when the RBA forecast the cash rate would not move north until at least 2024,” Sally Tindall, Director RateCity.com.au research, mentioned.
NAB, for example, has increased certain fixed rates by nearly 3 percentage points over the past year. Its four-year mortgage rate fell from 1.98% to 4.49%, the data group said.
Household electricity bills will also rise as rising coal and gas costs for generators drive up wholesale rates.
Katrina Ell, senior economist at Moody’s Analytics, is among the more dovish analysts, predicting the March CPI will hit an annual rate of 4.1% for the quarter. The underlying rate, which excludes volatile items and is what the RBA watches most, will be 3.1%, she said.
Ell notes that while the RBA has said it wants to see wages rise further before raising rates, its officials have also pointed out that the wage price index – which is due to be released on May 18 for the March quarter – does not recover all the increase. . One of the reasons is that more and more people are changing jobs, thus receiving a higher salary, she said.
Pandemic-related shortages have also added to price pressures, especially since the latest lockdowns in China, where the government continues to pursue a zero Covid policy. More recent shutdowns, such as in Shanghai and now Beijing, will drive prices higher this quarter and later, with increases depending on the scale of production and transportation affected.
The effects for Australia include not only falling prices for iron ore and other commodities, but also a delay in the recovery of the country’s service sector.
“We don’t expect to see a strong resurgence in, for example, arrivals from China,” Ell said, cutting out some of the biggest spenders. “It was expected that this year, particularly in the first half of the year, we would see this kind of beleaguered service sector really start to recover.”
Short-term relief will arrive as the Morrison government’s $250 cost-of-living payments start rolling out from Wednesday, politically easily coinciding with the CPI release. By the end of the week, 6 million eligible Australian pensioners, welfare recipients, veterans and concession card holders will receive a total of $1.5 billion.
Todarello, however, predicts fruit and vegetable prices will remain high for months as above-average rains in growing areas do not appear to have ended. She also points to the likelihood of fuel prices rising once the six-month excise duty cut ends.
“There’s a lot of pressure that’s going to be on the household sector over the next year,” Ell said.