Soaring house prices and rents propel inflation higher

Inflation remains persistently sticky, potentially paving the way for the Reserve Bank of Australia (RBA) to deliver a fresh round of interest rate rises in the months ahead.

The monthly Consumer Price Index (CPI) indicator rose 7.3 per cent in the twelve months to November 2022, according to the latest data released by the Australian Bureau of Statistics. The latest jump follows annual increases to inflation during both September (7.3 per cent) and October (6.9 per cent).

The cost of new dwelling purchases, owing to increased labour and material expenses, rose sharply (17.9 per cent) in the year to November. Fewer government construction grants also contributed to the hike in house prices.

Rents across Australia also increased month-on-month, from an annual rise of 3.5 per cent in October to 3.6 per cent in November, reflecting a tough and tightening marketplace.

Other factors which caused inflation to rise in the year to November included food and non-alcoholic beverages (+9.4 per cent), transport costs (+9.0 per cent), furniture, household equipment and services (+8.4 per cent) and recreation and culture (+5.8 per cent).

Further economic pains ahead

While the latest monthly CPI release doesn’t paint a rosy picture of Australia’s economy, there are likely additional upcoming costs to be borne by consumers in the form of electricity price hikes.

“The November result doesn’t fully include the latest energy prices that are a direct result of nine months of Russian aggression and nine years of Coalition incompetence,” Treasurer Jim Chalmers said, according to the AFR.

“Even after inflation peaks in our economy, we need to remain vigilant to the global economic pressures that will continue to impact us for some time to come.”

Increases in electricity prices were negated by government rebates late last year, when Labor capped gas prices for 12 months in an attempt to curb rising energy costs. Treasury forecasts suggest that the caps on coal will cut $230 from anticipated price hikes to the average household electricity bill this year.

Inflation is affecting every aspect of Australian finances at the moment, from the cost of lettuce to home loan interest rates. So how high is inflation likely to go, and when will it reach its peak? We analysed what some of Australia’s leading financial institutions had to say in their recent forecasts. The shared consensus is, generally, that the situation remains fluid and we still have a ways to go before there’s some relief.

Dwelling values fell throughout 2022, with rising interest rates designed to quell inflation partially to blame. Research indicates that house prices may begin to rise again some time in 2023, though only under specific circumstances.

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