Consumers brace for higher prices as inflation pressures grow

Households are preparing for an acceleration in prices that could eat into their standard of living and force the Reserve Bank to re-think its plan to keep interest rates at ultra-low levels for the next three years.

An ANZ-Roy Morgan survey on Tuesday showed a jump in consumers’ inflation expectations to their highest level in more than six years.

Households are preparing for rising prices.Credit:Alamy

ANZ head of Australian economics David Plank said a rise in average petrol prices of more than 10 per cent nationally in the past fortnight was “notable” and probably had an impact on household perceptions of price increases.

The RBA is expecting inflation and wages growth to stay sluggish until well into 2023 despite growing global inflation pressures. It maintains it will have to keep official interest rates at 0.1 per cent until 2024 but financial markets believe local wages growth and global supply shortages will drive up inflation much faster, forcing the RBA to start lifting rates by the middle of next year.

Commonwealth Bank economists expect underlying inflation – the RBA’s preferred measure of price pressures – to rise to 1.8 per cent a year in a soft result in Wednesday’s official measure of inflation. CPI measures the change in the price of a basket of goods, including housing, food, transport, furnishing, education and communications. Housing is one of the biggest costs facing families, usually making up about 23 per cent of the “basket”.

Rents are increasing at their fastest rate since 2008, CoreLogic figures show. Its September-quarter report found rents were 8.9 per cent higher year-on-year, with detached housing particularly costly.

CoreLogic research director Tim Lawless said the rise in home-based working and the need for more space had driven this shift, alongside a big rise in regional rents as more people moved to the country during the coronavirus pandemic.

“With regional housing rents rising 12.5 per cent over the past year at a time when household incomes have hardly budged, it’s likely that rental affordability is becoming a lot more challenging in some of the most popular regional markets,” he said.

Brisbane rents increased 2.6 per cent over the quarter, followed by 2.3 per cent in Sydney.

CommSec senior economist Ryan Felsman said renewed concerns about the cost of living were probably due to record petrol prices, higher food costs, surging utility bills and annual insurance price rises.

“Rising costs of inputs and production, due to supply chain disruptions and labour shortages, could eventually lead businesses to pass on these higher costs to consumers through price hikes,” he said. “As evidenced elsewhere in the world, rising consumer inflation expectations could potentially dampen confidence, with households reluctant to spend in the near-term, delaying ‘big-ticket’ purchases.”

AMP Capital chief economist Shane Oliver said there had been a surge in inflation globally, but much of this was tied to the pandemic and the disruption to the production of some goods along with a boost in demand for others. He said these effects should subside as economies re-opened from lockdowns and restrictions.

“However, beyond the next 12 months or so … the long-term decline in inflation since the 1970s is likely over, with the risk that it will trend higher over the decade ahead,” Dr Oliver said.

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