This morning ABS released the CPI readings for the month of December 2022. The reading showed that the annual headline inflation rose to 7.8% year on year which is the highest inflation reading since March 1990. This reading was higher than the economists and market predicted estimate of around 7.5%. It showed that the inflation in Australia hadn’t peaked before.

Source: Australian Bureau of Statistics

The Trimmed mean CPI which excludes highly volatile items rose 6.9% which is higher than the core CPI readings of US and UK. This Trimmed mean CPI reading is the highest recorded since the measurement started in 2003. The latest Core CPI of US stood at 5.7% while that of UK stood at 6.4%.

Source: Bloomberg

Annual Housing prices rose highest of 10.7% which is almost the highest weighted item in the CPI basket. Food and non-alcoholic beverages prices rose 9.2% year on year while transport prices rose 8% due to the rising price of fuel and energy costs. Similarly, annual healthcare and education prices rose 3.8% and 4.6% respectively. Communication prices rose just 1.3% which is the item with lowest price rise year on year.

The quarterly headline (all groups) CPI rose by 1.9% from Sept to Dec 2022 while the Trimmed mean CPI rose 1.7%. Recreation and Culture item recorded highest quarterly rise of 5.4% which could be attributed to risen demand due to Christmas and year end holidays and this shows that consumer spending is still strong due to the savings buffers and pent up demand of COVID lockdowns. Communications item decline 0.5% this quarter which was the only item in the price basket to record a deflationary pressure. Today’s data shows service inflation has started to rise while goods inflation has peaked and is starting to decline. The services component rose 5.5% which is the largest annual rise since 2008 as per the ABS.

This inflation data makes 25 basis points hike by the Reserve Bank of Australia(RBA) on the cards for its next meeting. As RBA is committed to bringing the inflation back to its target range of 2-3% in the medium term, economists now are in growing consensus that the terminal RBA cash rate will get to 3.6% in the next two meetings.