REIA says perspective required in interpreting CPI

The RBA’s July meeting indicates that inflation is expected to peak later in 2022 and then decline back towards the 2 to 3 per cent range in 2023.

The Announcement:

ABS figures released today show that the All Groups CPI increased by 1.8 per cent in the June quarter and by 6.1 per cent for the year.

A drop in the quarterly rate from the March quarter which was the highest quarterly increase since December 1990 but an increase in the annual rate to the highest since June 2001.

REIA President, Mr Hayden Groves said the annual changes for the analytical series of trimmed mean and for the weighted median, which exclude large one-off price impacts, were 4.9 per cent and 4.2 per cent for the year.

The annual change for the trimmed mean is the highest since the ABS first published the series in 2003. 

“The latest CPI figures foreshadow further increases in the official interest rate by the RBA.

“However we have to keep things in perspective and recognise that the source of the inflation is due to supply constraints and not demand driven from an overheated economy.

Prices have risen markedly in all the advanced economies. The pandemic, weather events in Australia and Russia’s invasion of Ukraine have led to disruptions to supply.

“These are essentially once-off price rises. Prices won’t keep rising for these reasons and, eventually, the supply disruptions will be resolved.

“The Minutes of the RBA’s July Board meeting indicate that members expect inflation to peak later in 2022 and then decline back towards the 2 to 3 per cent range in 2023 as global supply-side problems continue to ease and commodity prices stabilise.

“Nevertheless with all the measures of inflation outside the RBA’s target zone further increases in the cash rate can be expected which will add to mortgage payments and decrease affordability but the increases will taper off to what the RBA refers to as its neutral rate – a rate that is neither expansionary nor contractionary,” he said.

Mr Groves said that in a speech last week the Governor of the RBA said ‘we don’t need to return inflation to target immediately…but we do need to chart a credible path back to 2-3 per cent …. we are seeking to do this in a way in which the economy continues to grow and unemployment remains low’.

“In addition in a recent speech, the Deputy Governor of the RBA said ‘on balance, though, I would conclude that as a whole households are in a fairly good position. The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases’.”

Mr Groves said the Housing Group increased by 2.5 per cent for the June quarter and 9 per cent for the year with new dwelling prices recording their largest annual rise since the series commenced in the June 1999 quarter.

The increase being driven by high levels of building construction activity combined with ongoing shortages of materials and labour.

“Rent increases were more modest than in various reports with the capital city weighted average increase for the June quarter of 0.7 per cent and 1.6 per cent for the year.

There was however a large variation between capital cities with Sydney and Melbourne having decreases of 0.3 per cent and 0.2 per cent respectively for the year and Darwin and Perth having increases of 11.4 per cent and 9.1 per cent respectively.

“Whilst the July CPI figures suggest that a further rate rise can be expected next week, it needs to be kept in perspective that we have had historically low rates since the end of 2019, including the lockdown emergency level of 0.1 per cent, and we are moving to more normal settings and the inflation rate will fall back to the RBA’s 2 to 3 per cent target range,” concluded Mr Groves.

Source: Real Estate Institute of Australia

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