Australian inflation hits 33-year high on energy costs and tourism rebound

Australia’s inflation rate hit a 33-year high in the final quarter of 2022, pushed higher by rising costs of energy and new homes and a rebound in tourism, but the government said it hoped that price growth had peaked.

Official data on Wednesday showed that inflation rose 7.8 per cent year on year in the October to December quarter, the highest rate since 1990. The reading will dash hopes of a pause in rising interest rates, which have climbed 3 per cent since May, putting pressure on household finances.

Jim Chalmers, Australia’s Treasurer, noted that the 1.9 per cent quarter-on-quarter rise was lower than the 2.1 per cent recorded in the three months to March, but added that price growth was nonetheless “unacceptably high”. He said that grappling with inflation had been the government’s “defining challenge” in 2022 and would be so again this year.

“Our expectation and hope is that inflation has peaked,” Chalmers said.

Adelaide Timbrell, senior economist at the ANZ bank, said the reading, which came in higher than forecasts, would cement the chances of a 0.25 per cent interest rate rise from 3.1 per cent next month, with a similar increase probable in March as consumers spend more on recreation.

Gareth Aird, economist with the Commonwealth Bank of Australia, said inflation data would be a “smoking gun” for further rate rises, even as steadily increasing rates over the past seven months had done very little to drive down prices. The central Reserve Bank of Australia has sought to engineer a “softer landing” than in other global economies grappling with inflation because of its high levels of household debt and weaker wage growth.

“There are no two ways about it — inflation was red hot in Australia over 2022, as it was in many parts of the world,” Aird said.

Australia’s inflation has been driven by energy bills, new housing and food over the course of the year as Russia’s invasion of Ukraine and flooding in the country’s agricultural areas sent the cost of fuel and fruit and vegetables soaring.

The government has intervened in the energy sector to try to reduce a projected 56 per cent surge in electricity costs this year. Chalmers said there were early signs that the move had “taken the sting out of” energy prices, which rose 8.6 per cent in the quarter on an annual basis.

Housing prices rose 10.7 per cent year on year in the fourth quarter, while those of food and non-alcoholic beverages jumped 9.2 per cent.

Entertainment and recreation was another big factor in price rises in the December quarter, gaining 9 per cent year on year on the back of increasing flight and accommodation prices as the tourism sector rebounded from Covid-19 pandemic lockdowns put in place in 2021.

Inflation has become a political issue across the Tasman Sea, where Chris Hipkins, who was sworn as New Zealand’s prime minister on Wednesday following Jacinda Ardern’s abrupt departure as leader, has reset his government’s priorities on inflation and the cost of living.

New Zealand announced on Wednesday that annual inflation was 7.2 per cent in the fourth quarter. While this figure was lower than in countries including Australia and the UK, Hipkins said his new government needed to do “whatever it takes” to alleviate the impact of higher prices on household budgets.