- Inflation rose to 3.8 per cent
- Fears raised RBA will raise cash rate
The annual rate of inflation has risen from 3.7 to 3.8 per cent, raising fears the Reserve Bank will increase the cash rate in a major blow for mortgage holders.
Australian Bureau of Statistics data released on Wednesday showed the trimmed mean rose to 3.4 per cent in the 12 months to January, despite market expectations it would come in at 3.3 per cent.
The figure sits above the RBA’s target band of 2-3 per cent.
The trimmed mean is the RBA’s preferred measure of underlying inflation.
The RBA was forced to raise the cash rate by 0.25 basis points earlier this month due to hotter than expected inflation figures, with the rate now at 3.85 per cent.
Ahead of the data release, Finance Minister Katy Gallagher said the figures would be closely watched.
‘We did see last month that inflation ticked up a little and we saw largely as a result of some of those temporary energy rebates coming off that influenced those,’ she told ABC Radio.
‘The job for the government remains the same, being conscious that the decisions we make right for the economic circumstances of the time.
Millions of mortgage holders have been delivered a cost-of-living blow with inflation rising to 3.8 per cent, raising fears the RBA will not lower the cash rate anytime soon
‘So we’ll see what that data says, and we’ll make decisions based around that.’
The biggest contributor to inflation for the month will likely be energy, with electricity rebates from governments coming to an end in December.
Month-on-month electricity prices are tipped to have risen as much as five per cent in January after cost-of-living measures wound up.
A fall in the cost of fuel and holiday travel is also expected to alleviate some inflationary pressures.
A small downturn was likely due to January traditionally being a slower month for inflation growth, Westpac senior economist Justin Smirk said.
However, there would be some pressure points.
‘We expect food to remain inflationary, with a solid contribution from the seasonal rise in fresh fruit and vegetables and non-alcoholic beverages,’ he said.
‘Health is also boosting our estimate with a 3.2 per cent increase in hospital and medical services.’
The RBA was forced to raise the cash rate by 0.25 basis points earlier this month due to hotter than expected inflation figures, with the rate now at 3.85 per cent (stock image)
The federal budget is due to be handed down by Treasurer Jim Chalmers in May, as Senator Gallagher said the federal government was looking to find significant savings.
‘That’s partly to ensure that we’re managing the budget properly. It’s also to try and find room to fund the things that we need to fund,’ she said.
‘There’s significant pressures coming from defence, in healthcare, in aged care, all of those areas that the demand is increasing, not decreasing.
‘The responsible thing to do is to look at where you have existing expenditure and look to whether we can find savings to return that to budget.’
The stubborn rates of inflation have caused the Reserve Bank’s board to consider further interest rate rises.
The rise of inflation has also led to a decline in real wages for the first time in more than two years.
more to come
