Inflation pressures set to expand despite fuel reprieve
Inflation pressures are increasing despite the expected decline in the consumer price index.
Data released by the Australian Bureau of Statistics on Wednesday will likely show headline inflation cooled in April.
AMP economist My Bui predicted the annual rate would fall to 4.4 percent from 4.6 percent the previous month.
The slowdown is largely due to the government’s decision to temporarily halve fuel duty.
As a result, the Federal Reserve will likely look at the decline in the headline measure and instead focus on reduced average inflation, which provides a better understanding of the underlying pulse, Ms. Bui said.
AMP estimates the shortened average will rise to 3.4 percent on an annualized basis.
“We are also seeing much more price increases, which we can call second-round effects,” he told AAP.
Almost three in four Australian businesses reported they were negatively impacted by fuel prices and supply disruptions, according to the ABS May business conditions and sentiment survey published on Tuesday.
Half of businesses reported that their operating expenses had increased, with fuel prices and freight and delivery costs being the biggest culprits.
Although fuel prices decreased, the prices demanded by businesses remained behind input costs, while fuel surcharges continued to be commonplace in sectors such as construction and logistics.
Prices for household services such as gardening and cleaning are expected to increase by 5.2 percent, Ms. Bui said.
“The RBA is paying attention to things like market services like hairdressers, domestic services,” he said.
“This shows the underlying pressures in the economy a little bit better, because these categories tend to be sticky, so I expect them to look at that carefully.”
Housing inflation will also be an important focus for the central bank as it tends to be an early indicator of overall inflationary pressures in the economy.
The measure, which covers rents and new home purchases, has become “feverish” as construction material costs soar.
Ms. Bui expects another strong increase of 6.4 percent.
The ABS will also publish construction jobs figures on Wednesday, which will also be watched by the RBA as a sign of the strength of the economy.
Given that the data only covers the March quarter, it will not show the full impact of the Iran war.
But Ms Bui said it could still give insight into whether the RBA’s first two rate hikes had any impact on activity or whether the economy was still hot.
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