Australia’s prices surge at fastest pace in two decades

Soaring prices come as Prime Minister Scott Morrison fights a tough election campaign.

Australia's consumer prices rose at their fastest pace in two decades during the last quarter [File: Loren Elliott/Reuters]

Australian consumer prices surged at the fastest pace in two decades during the last quarter as petrol, home building and food costs climbed, raising speculation of an interest rate hike as soon as next week.

The surging inflation comes as Prime Minister Scott Morrison fights a tough election where the rising cost of living has become a major concern among voters.

The data also bolsters arguments that the Reserve Bank of Australia (RBA) no longer needs to keep interest rates at emergency lows of 0.1 percent and should tighten soon, perhaps even at its policy meeting on May 3 rather than in June.

Markets quickly narrowed the odds on a rise to 0.25 percent next week, though many still favour a June hike given such a sudden move would cause political ripples so near to the election on May 21.

“We now expect the RBA to initially hike by 40bp to 0.5 percent in June,” said Andrew Boak, an economist at GS Macro, who sees a series of quarter point moves to an eventual peak of 2.5 percent.

“The combination of above-target inflation, an economy initially resilient to hikes and a more hawkish reaction function skews risks to a steeper and higher path for rates.”

Wednesday’s data made for painful reading as the consumer price index (CPI) jumped 2.1 percent in the first quarter, topping market forecasts of a 1.7 percent increase.

The annual pace picked up to 5.1 percent, from 3.5 percent the previous quarter and the highest since 2001.

A closely watched measure of core inflation, the trimmed mean, climbed a record 1.4 percent in the quarter, taking the annual pace to the highest since early 2009 at 3.7 percent.

That was the first time since 2010 that core inflation had lifted above the Reserve Bank of Australia’s (RBA) 2-3 percent target band, a radical turnaround from recent years when it consistently undershot.

“This reflected the broad-based nature of price rises, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy,” said Michelle Marquardt, the head of prices statistics at the Australian Bureau of Statistics.

Petrol led the charge with a gain of 35 percent for the year, while the cost of new dwellings climbed a record 13.7 percent. Food prices also picked up in the first quarter driven by high transport, fertiliser, packaging and ingredient costs.

Tim Harcourt, chief economist at the Institute for Public Policy and Governance (IPPG) at the University of Technology Sydney, said the rise had been largely driven by soaring education, health and housing costs.

“Not a wage price spiral like inflation of the 1970s and 1980s known as stagflation,” Harcourt told Al Jazeera. “Policy stance should be to try and boost wages now.”

Source: Al Jazeera and news agencies