Australia’s consumer price index has risen over the December quarter as government stimulus measures and a jump in tobacco taxes increased prices.
The key inflation indicator published by the Australian Bureau of Statistics showed a 0.9 per cent rise on the previous quarter, largely influenced by an increase in the excise price applicable to tobacco and a jump in childcare spending.
Annual inflation levels also rose 0.9 per cent according to the ABS.
ABS statistician Michelle Marquardt said the wind down of federal government childcare subsidies and the continuation of home building grants were major factors in the CPI uplift.
“The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction, continuation and conclusion of a number of government schemes, including childcare fee subsidies and home building grants,” she said.
Tobacco prices over the quarter rose 10.9 per cent nationally, while childcare prices rose 37.7 per cent as a result of the subsidy scheme ending.
Purchases for new dwellings rose 0.7 per cent, with Ms Marquardt noting the rise is partly due to the federal government’s HomeBuilder grant and various state governments implementing new build stimulus grants.
BIS Oxford Economics chief economist for Dr Sarah Hunter said intervention measures because of the pandemic would continue to distort the inflationary figure.
“Looking ahead, the series will continue to be distorted by COVID-related factors and these could temporarily push the annual pace of inflation above 2 per cent,” Dr Hunter said.
“But these shifts aside, the underlying weakness will remain for quite some time; notwithstanding the strength of the economic recovery thus far, there is still some way to go before the labour market reaches full employment and upward pressure on wages resumes.”
ANZ economists were expecting fourth quarter inflation to rise 0.8 per cent, with the headline figure being influenced by further normalisations of childcare prices following the easing of government support measures.
ANZ said trimmed mean inflation, the figure which the Reserve Bank focuses on for setting its monetary policy settings, would likely lift in the second half of 2021 but remain at inadequate levels.
“Looking forward, we expect to see annual trimmed mean inflation lift in the second half of 2021, but with still considerable labour market slack expected, we don’t see it returning to the RBA’s target band for the next couple of years,” the bank said in an economic note on Wednesday morning.
CommSec chief economist Craig James also reaffirmed the view that inflation would remain below the central bank’s target.
“Inflation is likely to remain below, or near the bottom, of the Reserve Bank’s 2-3 per cent target band for most of 2021,” Mr James said.
“As a result the Reserve Bank has committed to not increasing the cash rate for three years.”
Coinciding with CPI figures, National Australia Bank’s monthly business survey found confidence in the economy had pulled back in December, reflecting the impact of the Sydney northern beaches coronavirus cluster, but it still suggested there was strong momentum in the country’s recovery.
According to NAB, business confidence fell nine points to an index position of four, while conditions rose seven points to 14 index points, the highest level recorded in the bank’s survey since August 2018.
NAB chief economist Alan Oster said the survey pointed to improved employment conditions and capacity utilisation returning to pre-coronavirus levels.
“Overall, another positive survey result, with business conditions rising to its highest levels since 2018,” Mr Oster said.
“The improvement in conditions is broad based and, importantly, driven by big move back into positive territory for employment conditions.”