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By Michael Yardney
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Chances of a cash rate pause increases with latest CPI figures

The Consumer Price Index (CPI) rose 0.8 per cent in the June 2023 quarter and 6.0 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).

Michelle Marquardt, ABS head of prices statistics, said:

"CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021.

While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.”

All Groups Cpi, Australia, Quarterly And Annual Movement (%)

Inflation is still rising yet the rate of growth has eased following the 7% annual increase in the March 2023 quarter.

Underlying inflation or trimmed mean, which excludes one-off price impacts, also rose in the June 2023 quarter, up by 0.9% and 5.9% annually, which is a fall from the 6.6% increase in the March quarter.

All Groups Cpi, Australia, Annual Movement (%)

Quarterly CPI inflation

The most significant contributors to the rise in the June quarter were rents (+2.5 per cent), international holiday travel and accommodation (+6.2 per cent), other financial services (+2.5 per cent) and new dwellings purchased by owner occupiers (+1.0 per cent).

"Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market. Rental price growth for flats continued to outpace the growth for houses.

"Higher demand for international travel, particularly to Europe with the start of the European summer peak season, led to price increases. These were partially offset by price falls for travel to South-east Asia and New Zealand as prices dipped following increases during the Christmas and school holiday periods in December and January,” Ms Marquardt said.

Fees and charges associated with real estate transfers were the primary contributors to the increase in other financial services.

The rate of growth in new dwelling prices continues to slow down this quarter. This reflects lower new demand as well as material costs easing.

Food prices (+1.6 per cent) also rose this quarter following increases of 1.6 per cent and 0.9 per cent in the March 2023 and December 2022 quarters. This rise was driven by meals out and takeaway foods (+1.7 per cent), fruit and vegetables (+2.4 per cent) and bread and cereal products (+2.9 per cent).

"A shortage of potatoes due to wet weather in key growing regions late last year has continued to place pressure on prices for potato products, including takeaway hot chips, potato crisps and frozen potato products. Vegetable prices rose due to some salad vegetables, like tomatoes and lettuces, coming out of season,” Ms Marquardt said.

Reducing the June quarter rise were price falls for domestic holiday travel and accommodation (-7.2 per cent), electricity (-1.8 per cent), clothing accessories (-2.2 per cent) and automotive fuel (-0.7 per cent).

What does this mean for interest rates?

Canstar’s Editor-at-Large and money expert, Effie Zahos.

“The chance that the Reserve Bank may pause the cash rate again has just increased.

Even though job numbers in June came in surprisingly strong, the unemployment rate is a lagging indicator. If the June retail sales, which come out on Friday, are flat then there is certainly less pressure for the Reserve Bank to hike the cash rate in August.”

Aussies are paying less than other countries at the check-out

Home loan borrowers have endured since May 2022 a 4 percentage point increase in the cash rate, which according to Canstar’s research has added approximately $1,217 to the monthly repayments on a $500,000 loan over 30 years or as much as $2,435 for those with a $1 million loan.

Impact of Cash Rate Rises on Home Loan Monthly Repayments

Apr 22

July 23

Repayment increase since April 22

+0.25%

Potential repayment increase

$500,000

$2,103

$3,320

$1,217

$3,404

$1,301

$750,000

$3,154

$4,980

$1,826

$5,106

$1,952

$1,000,000

$4,205

$6,640

$2,435

$6,808

$2,603

Source: www.canstar.com.au. Monthly repayment calculations based on a loan repaid using P&I repayments over a total loan term of 30 years. Calculations assume a pre-May cash rate average variable rate of 2.98% (based on owner occupier, variable loans on Canstar's database, available for a loan amount of $500,000, 80% LVR and P&I repayments; excluding introductory and first home buyer only loans), with increases in rate based on applying the applicable increase in cash rate.

Higher home loan repayments combined with higher living costs has been eating away at incomes.

But further analysis from Canstar shows the impact of inflation on everyday items commonly purchased in Australia with Aussies paying less at the check-out for basic food items than many other overseas counterparts.

When comparing the average cost of a basic basket of food items including rice, milk, eggs,chicken, potatoes, carrots, bananas, apples, coffee and soft drink, Australians were paying less than those in New Zealand, Japan, and the United States.

The UK was the only region in the analysis paying even less than Australians, at $61.63 AUD for the basket of goods compared to $72.94 AUD in Australia.

However, it’s all relative to income with Aussies forking out 37% of their daily income on basic groceries compared to the UK where they are handing over 47% of their daily pay at the checkout.

“The fall in inflation across several countries shows global inflationary pressure is easing.

Of course, if wages are lagging then the cost of essential food items will continue to add pressure on Australian households ,” says Zahos.

There are plenty of ways households can still cut their grocery bills. Snapping up e-discount grocery cards through their health funds or car membership programs is one way. Using unit pricing as a filter to sort out groceries online can also help ensure you’re getting the best deals.

Big savings can also still be made with other regular household bills like home loan repayments, home and car insurance premiums, along with energy bills.

Canstar’s Cost of Living Comparison shows a potential $13,430 can be saved in the first year by switching from average to cheapest or best valued option.”

Cost of Goods Compared Across a Range of Countries

Rice 1kg

Milk 1L

Dozen Eggs

Beef 1kg

Chicken 1kg

Potatoes 1kg

Carrots 1kg

Bananas 1kg

Apple 1kg

Nescafe Gold 200g

Coca-Cola 500mL

Total

Cost of Goods (AUD)

Australia

$2.40

$2.95

$7.20

$24.00

$4.50

$2.25

$2.40

$3.96

$4.90

$15.00

$3.38

$72.94

New Zealand

$3.77

$2.29

$9.38

$21.15

$8.56

$3.31

$3.21

$3.49

$4.13

$17.48

$3.67

$80.44

UK

$3.06

$3.06

$5.54

$21.33

$5.92

$1.22

$1.05

$1.93

$3.25

$11.44

$3.53

$61.33

Japan

$5.97

$2.74

$4.78

$29.00

$13.91

$6.48

$8.50

$2.43

$8.56

-

$1.26

$83.63

USA

$6.71

$2.92

$6.26

$22.93

$15.79

$4.07

$3.22

$1.61

$6.41

$31.28

$1.24

$102.44

Annual Income (AUD)

Percent of Daily Income

Australia

$71,708

1.22%

1.50%

3.66%

12.22%

2.29%

1.15%

1.22%

2.02%

2.49%

7.64%

1.72%

37.13%

New Zealand

$70,917

1.94%

1.18%

4.83%

10.89%

4.41%

1.70%

1.65%

1.80%

2.13%

9.00%

1.89%

41.40%

UK

$64,657

1.78%

1.47%

1.86%

18.47%

6.31%

1.04%

2.66%

1.47%

1.85%

9.34%

0.88%

47.14%

Japan

$39,111

5.57%

2.56%

4.46%

27.06%

12.98%

6.05%

7.93%

2.27%

7.99%

-

1.18%

78.05%

USA

$89,350

2.74%

1.19%

2.56%

9.37%

6.45%

1.66%

1.32%

0.66%

2.62%

12.78%

0.51%

41.85%

Prepared by www.canstar.com.au - 24/07/2023. Price of goods sourced from globalproductprices.com. Price of goods sampled across a range of dates depending on the product type, and represents the latest available pricing. Milk prices are for semi-skim milk with fat content between 1.5% and 2.5%, depending on the specifics of each country. Pricing sampled based on the most popular brands in each country. Income calculated based on statistics published by tradingeconomics.com with income calculated as of Dec-2022 for Australia, March-2023 for New Zealand, May-2023 for Japan and UK, and June-2023 for US. Prices and incomes based on each country's native currency which was then converted into Australian Dollars based on current conversion rates.

Cost Of Living

Inflation Rates

Annual Change in Consumer Price Index

March 2023

Annual Change in Consumer Price Index

June 2023

Description of Consumer Price Index

Australia

7.0%

6.0%

The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households).

New Zealand

6.7%

6.0%

The Consumers Price Index (CPI) is a measure of inflation for New Zealand households. It records changes in the price of goods and services.

UK

8.7%

7.9%

Consumer price inflation is the rate at which the prices of goods and services bought by households rise or fall. It is estimated by using price indices.

Japan

3.2%

3.3%

The Consumer Price Index (CPI) is calculated by comprehensively measuring the price fluctuation of goods and services purchased by households nationwide.

USA

5.0%

3.0%

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Source: www.canstar.com.au. Figures sourced from each country's applicable statistics site. Australia: Australia Bureau of Statistics, New Zealand: StatsNZ, UK: Office for National Statistics, Japan: Statistics Bureau of Japan, USA: U.S. Bureau of Labour Statistics.

Summary of inflation over time

Annual Inflation

Year-ending

Headline

Trimmed Mean

Weighted Median

RBA Cash Rate

(at end of quarter)

June 2022

6.1%

5.0%

4.4%

0.85%

September 2022

7.3%

6.2%

5.0%

2.35%

December 2022

7.8%

6.9%

5.7%

3.10%

March 2023

7.0%

6.6%

5.9%

3.60%

June 2023

6.0%

5.9%

5.5%

4.10%

Source: ABS Consumer Price Index. Prepared by Canstar on 26/07/2023.

Quarterly Inflation

Quarter-ending

Headline

Trimmed Mean

Weighted Median

RBA Cash Rate (at end of quarter)

June 2022

1.8%

1.6%

1.4%

0.85%

September 2022

1.8%

1.9%

1.5%

2.35%

December 2022

1.9%

1.7%

1.6%

3.10%

March 2023

1.4%

1.3%

1.3%

3.60%

June 2023

0.8%

0.9%

1.0%

4.10%

Source: ABS Consumer Price Index. Prepared by Canstar on 26/07/2023.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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