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Petrol and cars driving Australian prices up as inflation continues to swell

August 4, 2021

Petrol and cars driving Australian prices up as inflation continues to swell

Australia’s Consumer Price Index ticked up 0.8% in the June quarter as the cost of cars and petrol roared back from pandemic lows.

Australia’s Consumer Price Index ticked up 0.8% in the June quarter as the cost of cars and petrol roared back from pandemic lows.

The price of cars lifted 2.2% during the quarter while the cost of filling it with petrol jumped 6.5% according to the latest data print from the ABS.

These rising costs helped lift the annual inflation rate to 3.8% – helped along by rising food costs. Vegetable prices grew 5.5%, fruit was up 4.7% and beef climbed 3.6%.

ABS head of price statistics Michelle Marquardt however noted these sizable increases are likely the result of a ‘base effect’ – in other words, the percentages look large because the comparison data (one year ago) was abnormally low.

Ms Marquadt noted car prices have been forced because demand has grown, but supply chain constraints – such as a global shortage of semiconductors – has hampered supply.

Petrol prices tell a similar story. In the 2020 June quarter crude oil prices rapidly fell, to hit 21-year lows as the impact of COVID-related travel restrictions began to weigh on demand.

With the economic recovery now well underway and many countries beginning to reopen, prices have made a full return – helping push up inflation.

“These ‘base effects’ led to a sharp increase in the annual CPI movement,” Ms Marquadt said.

“In situations such as this, it is useful to consider underlying inflation measures such as the trimmed mean, which are designed to remove large, one-off price impacts”. 

Using this measure, inflation only rose 1.6% over the year.

Markets watching for global, US inflation

Inflation has become a hot topic among market analysts in recent weeks, as the effects of large-scale money printing and low interest rates leave economies around the world flush with cash.

In the US, headline inflation hit a 13-year high of 5.4% in June after May’s data came in at 5%.

While the US Federal Reserve – the nation’s central bank – maintains this period of inflation is ‘transitory’ and will pass as the economy restabilizes after the pandemic, the sharp rises in recent months have led some analysts to caution it could be part of a longer-term trend.

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