June Quarter Inflation

Australia’s quarterly inflation figures are out for the June quarter, and they aren’t quite as bad as expected. Don’t be fooled by this, they are still really bad.

⚠️ Headline inflation came in at 6.1% YoY, lower than the 6.3% estimate.

⚠️ Trimmed mean inflation (the RBA’s preferred measure) was ahead of estimated at 4.9%.

⚠️ 80% of the goods and services that comprise the CPI basket saw price rises of more than 2.5%.

⚠️ Inflation for non-discretionary items was at 7.9%, this is the stuff that hits households the hardest.

⚠️ The biggest contributors to inflation last quarter were housing construction, automotive fuel, and furniture.

⚠️ Despite the well documents rental crisis in NSW and VIC, the ABS still has rentals in both those states down YoY. This is likely due to data timing, and increased rents will hit inflation next quarter.

It’s clear that inflation is becoming more broad based and entrenched. The RBA needs to hit the issue on the head with more aggressive rate rises.

Australia has erased over a decade of wage growth in just the last 18 months.

This quarter’s inflation print pushes real wages down to the same level they were in December 2011. This will have devastating long-term effects on employees in Australia. It will take years for real wages to recover the ground they have lost and undo the damage that this short inflation spike has already wrought.

This is one of the many reasons why arguments that the RBA should go slow on rate increases and let inflation run to reduce the risk of a recession are so wrong-headed. Inflation has debilitating long-term effect on the prosperity and stability of a country.

I’d like to see something between 75 and 100 basis points next week.