Why is everything so expensive in Australia right now? Petrol, fruit, veg, meat, energy, gas, building materials — the latest inflation data shows the cost of living is continuing to rise. And yes we all got a pay rise on July 1, but it’s not even close to keeping up with inflation so people are effectively losing money.
Data from the June quarter of 2022 released on Wednesday showed inflation is currently at 6.1 per cent. It’s up from 5.1 per cent in the March quarter — the fastest rise in 21 years.
Inflation was at 3.5 per cent at the end of 2021 and the new numbers have outpaced predictions from the Reserve Bank of Australia that inflation would peak this year at 4.5 per cent.
Inflation is forecast to keep on growing in the second half of the year, but hopefully we’ll see it slow down.
So why is this happening and how long until it levels out?
Let’s take a look.
How much more expensive is everything rn?
The Australian Bureau of Statistics found the most significant price rises in the June quarter were for new dwelling purchases (5.6 per cent), fuel (4.2 per cent) and furniture (7 per cent).
June data showed petrol price records were smashed for the fourth consecutive quarter. Given fuel is more than $2 per litre across the country, I for one simply cannot afford to drive. It’s gone up almost 40 per cent this year and household transport costs increased 13.1 per cent in the last three months alone.
Food and non-alcoholic drinks also got 2 per cent more expensive overall over the quarter, which means it all became 5.9 per cent more expensive from January 1 to July 1.
Some of the biggest increases this year were 7.9 per cent for soft drinks, 7.3 per cent for fruit and vegetables, 6.3 per cent for meat and seafood, 6.3 per cent for bread and cereals and 5.2 per cent for dairy.
Fruit and vegetable prices rose almost 6 per cent in the June quarter alone due partly to shortages caused by heavy rain in NSW and Queensland.
Consumable household products like detergents and toilet paper also went up 10.7 per cent. Honestly, we all need bidets.
New analysis by UBS published last week revealed prices at Woolworths and Coles rose 5.3 per cent in the past three months, the highest rise in the last year.
Both supermarkets have recently introduced price freezes on low-cost items like pasta and tinned tomatoes in an effort to keep customers coming back.
“Coles has also kept prices low on key items our customers rely on to feed their families like Coles Brand Pasta 500g, famous Coles Mum’s Sauce 500g, Coles Beef & Pork meatballs 560g, and Coles Tuna 95g — just a few of the thousands of products that have remained at the same price for the past year,” a Coles spokesperson said in a statement to news.com.au.
A Woolworths spokesperson also said supplier issues had lead to price increases.
“We review each cost increase request from our suppliers on a case-by-case basis and are mindful of sensitively managing ongoing inflationary pressure on food and groceries,” they said.
Why is everything so spenno?
The answer to why everything is so expensive in Australia basically comes down to three things: Ukraine, floods and rising corporate profits.
Firstly there’s a lot of uncertainty in Europe right now which usually sees global markets stressing.
Ukraine and Russia are also major exporters of wheat (about 25 per cent of the world’s supply) and crude oil, but production has slowed due to war. Limited supply means the balance with demand is off, so prices go up.
The uncertainty has also sent freight costs — which were already high due to the pandemic — up further. This means importers have to charge their buyers more to cover their own costs and the retailer who sells the product has to pass those costs onto the consumer. The flow-on effect is real and has caused chaos for the construction industry especially.
“Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings,” head of prices statistics at the ABS Michelle Marquardt told the ABC this week.
In NSW and Queensland floods disrupted agriculture, wiped out crops and caused huge logistical roadblocks — literally.
When rain and flooding block or present a potential risk to roads, it becomes harder to move goods around.
The supply chains used by markets and small green grocers are relatively short, but for supermarkets produce needs to travel long distances and stop off in several spots like processing and packing facilities.
The harder it is for the trucks to get from A to B to C, the less supply ends up on shelves and then, again, demand goes up along with prices.
On top of this Australia’s exorbitant petrol prices have meant ferrying goods from A to B to C is more expensive, and unfortunately we have to cough up to cover it.
Industry groups have argued that rising wages lead to rising cost of living, but new research this month asserted they actually have almost zero effect on inflation. In fact soaring corporate profits is the dominant factor in rising inflation.
Rising corporate profits contributed 60 per cent of the total inflation increase, or 2.5 out of 4.1 percentage points, in the last 12 months.
Will prices go down again?
The short answer is probably, but there are competing estimates for when or by how much.
The Reserve Bank has warned inflation could hit 7 per cent before the end of the year.
Treasurer Jim Chalmers told the ABC on Thursday morning the government had a “an inflation forecast north of 7 per cent.”
He said a spike in energy prices that hit in July will be reflected in next quarter’s numbers and will likely see inflation rise further. He also said when the petrol excise comes off at the the end of September, inflation will take another hit.
But some economists said this week the peak was in sight or may have already arrived.
Some have said because the rate of growth actually slowed from 2.1 per cent in the March quarter to 1.8 per cent in the June quarter that meant we were coming down from our peak.
Missing from the yelling about 6.1% is the fact that inflation is declining. Prices rose 2.1% in the March quarter, 1.8% in June. Probably less in September. Annual rates simply affected by the base effect. Inflation has peaked.
— Alan Kohler (@AlanKohler) July 27, 2022
It’s still likely inflation will continue to rise this year, but hopefully at a slower rate. We now pray for a drop in 2023.
