Rising prices come as Prime Minister Scott Morrison wages a tough campaign.
Australian consumer prices rose at their fastest rate in two decades in the last quarter as fuel, housing and food costs soared, leading to speculation of a rate hike as soon as next week.
Rising inflation comes as Prime Minister Scott Morrison faces a tough election in which the rising cost of living has become a top concern for voters.
The data also supports arguments that the Reserve Bank of Australia (RBA) no longer needs to keep interest rates at an emergency low of 0.1 percent and should tighten soon, perhaps even at its May 3 policy meeting instead of June.
Markets quickly trimmed the odds of a rise next week to 0.25 percent, although many still favor a June hike as such a sudden move so close to the May 21 election would make political waves.
“We now expect the RBA to initially rise 40 basis points to 0.5 percent in June,” said Andrew Boak, economist at GS Macro, who sees a series of quarter-point moves to a possible high of 2.5 percent .
“The combination of above-target inflation, an economy initially resilient to rate hikes, and a more restrictive response function skews risks into a steeper and higher rate path.”
Wednesday’s data made for painful reading as the consumer price index (CPI) rose 2.1 percent in the first quarter, beating market forecasts of a 1.7 percent rise.
The annual pace rose to 5.1 percent, from 3.5 percent in the previous quarter and the highest level since 2001.
A closely watched measure of core inflation, the trimmed mean, climbed to a record 1.4 percent in the quarter, taking the annual pace to 3.7 percent, its highest since early 2009.
That was the first time since 2010 that core inflation has risen above the Reserve Bank of Australia’s (RBA) target range of 2-3 per cent, a radical reversal from recent years when it has consistently fallen below it.
“This reflected the broad nature of the price increases as the effects of supply disruptions, rising shipping costs and other global and domestic inflationary factors seeped through the economy,” said Michelle Marquardt, head of price statistics at the Australian Bureau of Statistics.
Gasoline led the charge, up 35 percent for the year, while the cost of new homes rose a record 13.7 percent. Grocery prices also rose in the first quarter, driven by high transportation, fertilizer, 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 surge was largely due to rising education, healthcare and housing costs.
“No wage-price spiral like the inflation of the 1970s and 1980s, known as stagflation,” Harcourt told Al Jazeera. “Politicians should now try to increase wages.”
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