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Soaring inflation increases pressure on the RBA to raise the cash rate
28 Apr 2022
The Government’s economic management credentials are being called into questions, with inflation climbing to 5.1 per cent in the year to March 2022, its highest level since June 2001 after the introduction of the GST.
ABS Consumer Price Index data released earlier this week show soaring fuel prices and the rising cost of new dwellings were the major contributors to the inflation surge.
Prices increased for all items included in the ABS CPI basket, with the exception of clothing and footwear. Fuel prices are up 35 per cent over the year, with the invasion of the Ukraine in February leading to an 11 per cent spike in the March quarter. New dwelling costs were up 13.7 per cent over the year, as supply chain constraints led to material shortages and exacerbated delays in construction. There were also notable increases in food prices, with vegetables up 6.6 per cent, fruit up 4.9 per cent and beef up 7.6 per cent.
The high fuel prices are affecting all businesses, through higher freight rates. The government’s decision to half the fuel excise in the March Budget should contribute to an easing of fuel price pressures in next quarter, although they are expected to remain elevated relative to the same period in 2021.
The rapid increase in inflation has put increased pressure on the Reserve Bank to raise the cash rate. Most market economists expect the RBA will increase the cash rate from 0.1 per cent to 0.25 per cent when it meets next week. This will be the first rate rise since 2010. The last time the RBA raised the cash rate in the middle of an election campaign was in 2007.
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