It bit about how the economy (both here and around the world) is in a very different position than last year, when figures showed inflation growing at 7.8 percent — the fastest rate since before the recession of the 1990s — with little Optimism is met. That the worst is behind us, not that everyone is screaming for the hills.
If the chart is not displayed, click here
The highest inflation growth in the last 32 years was due to a sharp increase in prices in December. The monthly inflation statistics, which the statistics office also published yesterday, show that prices increased by 1.6 percent in December alone.
So given such sharp increases, why should we be wise rather than panicked?
The main reason: When you crunch the numbers, you see that for the first time since 2020, the price of optional items rose faster than the price of non-optional items (that is, items you can’t avoid paying for):
If the chart is not displayed, click here
In the December quarter, the average price of discretionary items (excluding tobacco) rose 2.7 percent, compared with 1.3 percent for non-discretionary items.
Likewise, services prices rose faster than goods for the first time in two years. Quarterly growth in commodity prices has now slowed to 1.6% in the last quarter of 2022, down from 2.9% in the December 2021 quarter.
This suggests that many of the international and domestic supply issues are being ironed out, and we are not seeing the unusual events that occurred in 2021 when you have to wait months to buy items purchased from overseas.
We can also take some comfort from the things that single-handedly cause inflation. In the December quarter, 15 items accounted for 77 percent of all inflation growth, with the largest — by far — domestic holiday prices. Holiday spending, both in Australia and overseas, accounted for a quarter of the total increase in inflation in the December quarter.
If the chart is not displayed, click here
It’s not because everyone has so much cash that we go crazy and fly to all over the world and country. Rather, it’s a reflection that we’ve gone from essentially no vacations to far more domestic vacations than ever before.
When looking at short-term international inflows and outflows, it is clear that the tourism market is very different from what it was before the pandemic:
If the chart is not displayed, click here
This is not something the RBA can really influence. Yes, higher interest rates will reduce the ability to take vacations, but things are so unusual right now that prices are doing weird things — things that are unlikely to continue.
The same can be said for games – which saw a 5.5% price increase last year. Given that the price of games typically falls by around 1.3% each year, it’s clear that there’s a degree of consternation going on right now. Despite Australians spending an average of just 0.6 per cent of their weekly spending on games and entertainment, price increases accounted for 3.1 per cent of total inflation in the December quarter.
This made Christmas presents more expensive than expected:
If the chart is not displayed, click here
This is not to say that there were no problems at these prices.
Optional just means you can avoid paying, not that you did. The holidays and shopping for games and toys have less discretionary activity than usual in December, so it’s no surprise that credit cards across the country are getting a big workout.
The increase in the rental price is still going on in the inflationary numbers. Because rental prices in the CPI account for all rentals, not just new rentals, they can be a little slow moving. But they are moving now.
In all capital cities, rental prices are growing strongly, and – in Brisbane and Adelaide – at the fastest rate in 13 years.
If the chart is not displayed, click here
The good news is that owner-occupier prices seem to have peaked. As with rent, it may take some time to catch up to CPI figures, but with house prices falling in the last six months of 2022, we should expect prices in this category to drop as well.
The prices of most food and beverages also rose faster than overall inflation last year. Milk alone increased by 18 percent, while the price of bread increased by 13 percent. Only lamb prices in 2022 were lower than the average pre-pandemic price increase:
If the chart is not displayed, click here
And of course the pain is felt by everyone, given that wages aren’t going up nearly 7.8%.
The central bank predicted that wages would grow by 3.1 percent in the 12 months to December. They actually rose by that much in the year to September, so even if we assume better-than-forecast 3.25% wage growth in 2022, that still means real wages are now about where they were in June 2009. returned:
If the chart is not displayed, click here
After the GFC, real wages held steady for about two years and then grew slowly from 2012 to 2020. All that growth has now been undone.
Despite a big rise in inflation in 2022, the latest figures suggest it may have peaked. Prices are jumping due to unusual conditions and the return of normal behaviors such as eating out. But as international supply pressure eases and we see big changes in how we spend our money, prices should start to ease.