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Cash rate calm urged as inflation rises again

By Kyle Robbins
28 September 2023 | 12 minute read
hayden groves michelle marquardt denita wawn reb nyanpx

Inflation is on the rise again, according to the Australian Bureau of Statistics’ (ABS) most recent Consumer Price Index (CPI), but is the lift enough to inspire another cash rate hike?

“Naturally this CPI result will prompt fears of an RBA cash rate hike next Tuesday (3 October),” admitted Real Estate Institute of Australia president Hayden Groves, after the ABS CPI rose 5.2 per cent in the 12 months to August, up 0.3 per cent on the previous month.

The most significant increases were experienced in housing (6.6 per cent), transport (7.4 per cent), food and non-alcoholic beverages (4.4 per cent), and insurance and financial services (8.8 per cent).

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Mr Groves stressed “calm in the face of this monthly CPI figure by our monetary decision-makers”.

His calls were shared by ABS head of price statistics Michelle Marquardt, who explained: “CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel.”

“It can be helpful to exclude these items from headline CPI to provide a view of underlying inflation,” she said, adding that excluding these volatile sectors, the “annual rise of 5.5 per cent in August is lower than the annual rise of 5.8 per cent in July”.

With new dwelling prices rising 4.8 per cent in the year to August indicating “that the rate of price growth has continued to ease reflecting improvements in the supply of materials”, Mr Groves noted “subdued new demand is a reflection of the current market conditions”.

“Nevertheless, the annual rise in inflation for new dwellings is the lowest since August 2021 as buyers ease off on committing to new home builds,” he added.

Master Builders Australia chief executive officer Denita Wawn said despite a recent easing, material costs remain “well above the average”.

“Efforts are still needed to put downward pressure on the cost of building,” she claimed.

According to Anneke Thompson, chief economist at CreditorWatch, these efforts could be impacted by rising insurance pricing given the “construction sector, in particular, is very reliant on insurance”, as “rising insurance premiums will be the next headache the industry will face”.

With rental prices rising 7.8 per cent in the 12 months to August, Ms Wawn stressed: “Builders and tradies have a big job ahead of them to ensure we can build enough homes to start tackling rental inflation and meeting our Housing Accord objectives.”

Her sentiments were shared by Mr Groves, who added the CPI increase “shows strong demand for rental properties and tight rental markets, [and] also showcases the chronic housing shortage”.

“It is too soon to see any relief in the rental figures, although vacancy rates are showing signs of easing in certain capitals and regions,” he explained.

Mr Groves concluded: “Borrowing costs are some of the major challenges facing home developers, builders and buyers to increase housing supply, and we trust the RBA will balance the many considerations needed as we navigate through this inflationary period but also seek to house more Australians rapidly.”

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