Confidence tanks as fuel spike flows to building costs
Australian consumers are the least confident since records began as higher oil prices threaten to worsen the housing crisis by increasing construction costs.
Drivers are already feeling pressured by the increase in gas prices.
However, second-order effects have now begun to spread to sectors such as construction and aviation, increasing the Central Bank’s fears of a sustained explosion in inflation.
Consumer confidence fell 5.4 points last week to 63.1, ANZ and Roy Morgan’s long-running survey reported on Tuesday.
ANZ economist Sophia Angala said this was the lowest level since the index began in 1973.
“The decline is likely to be driven by the RBA’s decision to raise the cash rate to 4.1 per cent last week, as well as the effects of the conflict in the Middle East on oil prices and the economic outlook,” he said.
Worryingly for the central bank, inflation expectations rose to 6.9 percent; This rate is higher than the peak of the post-COVID inflation surge.
Following the RBA’s decision to raise interest rates in early March, Governor Michele Bullock said it was critical for inflation expectations to remain stable.
But the longer the war goes on, the more difficult this will be to achieve.
Westpac senior economist Pat Bustamante said headline inflation was expected to rise to just above three per cent by the end of the year, assuming a ceasefire in the Middle East would allow oil and gas to flow through the region once again.
“But the longer this situation continues, the greater the risk of inflation remaining sticky,” he said.
“We know there are a lot of energy-intensive industries, like construction.”
Builders have been hit by price increases for a variety of construction materials, from concrete to steel rebar and PVC pipes.
More than a dozen suppliers cited rising fuel costs as behind their decisions to increase prices by up to 20 per cent in emails sent to construction customers and seen by the AAP.
Housing Minister Clare O’Neil brought together construction industry leaders on Tuesday to discuss the impact of supply chain disruptions on housing supply and construction costs.
“What’s happening in the Middle East is not abstract; it’s clearly having real impacts here in Australia, and we’re staying in close contact with industry to understand how we can support them to build more homes for Australians,” he said.
The Australian Competition and Consumer Commission said that airfares will increase as a result of rising jet fuel costs and the closure of routes in the Middle East, and that it has increased its supervision over airlines.
Commissioner Anna Brakey said: “While market conditions will ultimately determine the cost of flying, we are closely monitoring price movements, market behavior and airlines’ representations to consumers and will take action if there is behavior that breaches competition and consumer laws.”
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