Inflation closes out the year on a high rising to 3.5% through 2021

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on January 25, 2022 Fact Checked
Inflation closes out the year on a high rising to 3.5% through 2021

Inflation data released Tuesday by the ABS toppled many economists’ predictions, rising 1.3% in the December 2021 quarter to an annualised rate of 3.5%.

The latest ABS Consumer Price Index (CPI) data for the December 2021 quarter highlights a 50 basis point rise to 1.3% from the September quarter.

Annually the CPI rose to 3.5% - ABS noted fuel was a key contributor, rising 6.6% in the December quarter and 32.3% annually.

Head of Prices Statistics at the ABS Michelle Marquardt said fuel prices were the largest contributor to higher goods inflation.

“More broadly, global supply chain disruptions and material shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods including dwelling construction materials, motor vehicles, furniture and audio-visual equipment,” Ms Marquardt said.

Domestic holiday travel and accommodation also contributed to the December quarter increase, rising 4.8%.

This is evidence of an increase in demand following the easing of domestic border restrictions in late October in the lead up to the Christmas holiday period. 

Alongside a rise in annual inflation, annual trimmed mean inflation increased to 2.6%, up from 2.1% in the September quarter.

"Annual trimmed mean inflation is the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods,” Ms Marquardt said.

RBA decisions loom large

All eyes now turn to the Reserve Bank of Australia’s forthcoming 1 February meeting with inflation lying above the target range of 2-3%.

In the RBA’s December 2021 board meeting, inflation was described as “low in underlying terms”.

CommBank's head of Australian economics and market research Gareth Aird said it would not be 'credible' to continue with the current characterisation of inflation as “low in underlying terms”.

APAC economist at global job site Indeed Callam Pickering said at first glance, the combination of high inflation and low unemployment suggests that a rate hike should be imminent. 

“A key question for the RBA - and one that will dictate near-term monetary policy - is the degree to which the RBA views the recent inflationary pick-up as being temporary,” Mr Pickering said.

“They will be willing to tolerate a brief period of high inflation but if there is a risk that it persists then they will be forced to address that via raising the cash rate.”

Westpac economists have already pencilled in an RBA hike in August, followed by a further hike in October.

Image by Geralt via Pixabay.

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Jacob Cocciolone joined the Savings team in 2021 as a Finance Journalist. Driven by a passion for keeping Australians up to date with the latest financial news and trends, his areas of interest include financial technology, investing, property and motoring.


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