Record fuel prices and cost of new homes push inflation to fastest pace since mid-2014

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Australia’s underlying rate of inflation increased to 2.6% annually, which was higher than market expectations

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Petrol price sign outside a BP station in Canberra in December. The rising cost of fuel has pushed the headline inflation figure to $3.5% in the December quarter, up 1.3% from the previous quarter.Petrol price sign outside a BP station in Canberra in December. The rising cost of fuel has pushed the headline inflation figure to $3.5% in the December quarter, up 1.3% from the previous quarter.

Michelle Marquardt, head of ABS’s prices statistics unit, said the 4.2% jump in new dwelling costs and the jump of 6.6% in automotive fuel prices were leading contributors to the higher CPI. The CPI rose in all state capitals, led by Hobart’s 2.2% for the quarter. Melbourne and Sydney, at 1.1% and 1.2% respectively, were close to the national average of 1.3%.

“While some of these cost pressures could still be seen as transitory, we expect the RBA will strike a more hawkish tone at next week’s meeting [on 1 February],” said Sean Langcake, a senior economist at BIS Oxford Economics. “A rate rise in 2022 is now more likely in light of these data.” Fresh figures out from NAB at the same time as today’s CPI release showed business confidence fell sharply in December as Omicron threatened to stall the economic rebound from last year’s east-coast lockdowns.

“Conditions eased but remained just above the long-run average in December,” said NAB chief economist, Alan Oster. “Conditions improved in a number of states including Victoria and Tasmania, but there was a large fall in Queensland that may relate to some of the challenges with state borders.”

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