Philip Lowe will never be mistaken for Dirty Harry.
But just as Dirty Harry wasn’t sure he had any remaining bullets in his pistol after taking out a gang of bank thieves, Lowe can’t be exactly sure how much more interest-rate pain the Australian economy can withstand.
Wednesday’s quarterly consumer price index could, depending on your monetary policy inclination, justify a rate rise when the Reserve Bank board meets next week or be used to hold the cash rate at 3.6 per cent.
Through the March quarter, inflation slowed. It was 7.8 per cent in the December quarter but has slowed to 7 per cent. Importantly for the Reserve Bank, underlying inflation – which excludes one-off price rises – also eased, from 6.9 per cent to 6.6 per cent.
But if you looked at the monthly inflation data, which was also released on Wednesday, it showed a small lift – from 6.8 per cent to 6.9 per cent (although well down on the 8.3 per cent recorded in December).
Within the inflation data itself, there are cases for and against another interest rate rise.
Housing costs, which jumped another 1.9 per cent in the quarter, remain a key inflation pressure. But the cause of that pressure is shifting.
A few months ago, it was being driven by costs associated with construction and the end of the Morrison-era HomeBuilder program. Now, it’s being driven by rents and the soaring cost of utilities.
Gas prices in Melbourne alone have jumped by almost 36 per cent over the past year, including a 22 per cent surge in the March quarter.
Rents nationally have jumped by 4.9 per cent over the past 12 months. Yet there are large differences across the country – in Melbourne, they’ve lifted by 3.1 per cent, in Sydney by 4.8 per cent while Brisbane tenants have faced a 7 per cent hit.
A lift in interest rates is unlikely to bring extra rentals into the market. But higher interest rates could force tenants to give up on the rental market, reducing demand.
One of the big contributors to inflation in the March quarter was the education sector. Prices increased by 5.3 per cent in the quarter, the largest jump for the sector in five years.
Education is made up of three areas. Primary and pre-school education costs actually fell by 0.8 per cent in the quarter, secondary education costs lifted by 4.9 per cent while tertiary costs accelerated 9.7 per cent.
That big lift in tertiary education costs were due, according to the Bureau of Statistics, to the Jobs-Ready graduate package of 2020 and to higher indexation fees on university courses. Those course fees have gone up because of past inflation.
Lovers of milkshakes and cheese are facing huge increases in the prices of their favourite products. The price of dairy products has increased by 14.9 per cent over the past year, the biggest jump since 1982 when the country was being ravaged by drought.
The figures also show inflation for services is still climbing. Inflation on goods is actually easing.
That suggests there’s enough money – and demand – in the economy for people to push up the prices for services which they either need or desire.
All of these different strands mean the RBA board – chastised by last week’s review of the institution – faces a tough decision when it sits next Tuesday.
After a record 10 consecutive rate rises, the board paused in April, ostensibly to wait on Wednesday’s inflation data.
The numbers are in. Business owners and home buyers are now wondering just how lucky they will be when the RBA board breaks from its meeting.
( Information from politico.com was used in this report. Also if you have any problem of this article or if you need to remove this articles, please email here and we will delete this immediately. [email protected] )