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The headline figure remains high and businesses will struggle with increased costs and slower consumer spending, observers say.
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‘Too soon to celebrate’ fall in inflation rate
01 December 2022
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The drop in inflation to 6.9 per cent is scant cause for celebration and businesses will still be feeling the pinch, accounting bodies say.
The annual CPI, updated by the Australian Bureau of Statistics (ABS) with October data yesterday, saw the headline figure fall from 7.3 per cent last month — but many essential items such as fresh produce and fuel are increasing much faster.
“While this month’s annual movement of CPI is lower than last month, businesses continue to be impacted by high inflation,” said CA ANZ business reform leader Karen McWilliams.
“Unfortunately there’s no easy solution to solve the cost of living pressures being faced by small and medium sized practices right now, and they’ll have to keep juggling costs well into 2023.”
Components keeping inflation high include new dwellings, which are rising at 20.4 per cent a year, automotive fuel at 11.8 per cent, as well as fruit and vegetables at 9.4 per cent.
“The figures show challenges for home renovators and builders, with dwelling purchase cost increases remaining stubbornly high,” said CreditorWatch’s chief economist Anneke Thompson.
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Fuel prices rose partly due to a restoration of 46c fuel excise, which was cut in half by the previous government until the end of September. Annual bowser price inflation is now running at 11.8 per cent, up from 10.1 per cent last month.
Fruit and vegetables bucked the trend, rising 9.4 per cent in the year to October although that was a decline from 17.4 per cent in September when supply was affected by widespread floods.
CPA Australia’s business policy adviser Gavan Ord said despite the slight drop it was only one month’s worth of data and businesses still faced increased costs.
“This may be a sign that inflation has peaked but we urge caution, this is just one month’s worth of data and the outlook is uncertain,” said Mr Ord.
“Prices will not stop rising overnight. Businesses and households must plan to feel the pinch in 2023.”
“Ongoing shortages of labour, supply chain constraints and geopolitical issues continue to push prices higher. There are no short-term fixes to these problems.”
The Treasurer also warned that the result could be a false dawn as power bills were not accounted for in the figures.
“The October result is yet to fully reflect the impact of the floods on grocery prices or the hit to energy bills caused by the war in Europe and the Coalition’s decade of policy chaos,” Treasurer Jim Chalmers told The Australian Financial Review.
Ms Thompson said optimism about the fall in overall CPI should be tempered by the danger signs for housing.
“Today’s data will give the RBA some comfort that inflation is stabilising and their monetary policy tightening measures are starting to work,” she said.
“However, the housing sector has more cause for concern. The price rises in that sector indicate a looming shortage of housing over the next few years as buildings become too expensive to commence.”
“That will increase risk for construction companies and the knock on effects are likely to be felt across the industry.”
Mr Ord said weaker consumer spending would impact businesses despite the result.
“We encourage businesses to factor in future rate rises and price increases into their planning,” he said.
“Consumer spending may dampen as prices rise further and higher mortgage repayments chew up their spare cash.”
“Businesses should be prepared that customers may change what they spend on and where during the biggest holiday of the year.”
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