INFLATION in Australia is on a downward trajectory, with recent figures from the Australian Bureau of Statistics (ABS) revealing a modest 0.6 per cent increase in the Consumer Price Index (CPI) during the December 2023 quarter.
This marks the slowest growth since March 2021 and indicates a significant slowdown in the inflation rate over the past year, rising by 4.1 per cent.
However, economists warn that challenges persist, and the implications for everyday Australians are worth noting.
According to Dr Gonzalo Castex, an economist and Senior Lecturer at UNSW Business School, the decline in CPI can be attributed to factors such as clothing, footwear, holiday travel, and furnishings.
Conversely, items like insurance, financial services, gas, electricity, rent, tobacco, bread, and cereal products have played a role in pushing the inflation rate in the opposite direction.
Rental and electricity prices remain significant contributors to overall rising costs, with a 7.1 per cent increase in rental prices and a 10.7 per cent surge in electricity prices in the 12 months to November, according to the ABS.
Dr Castex suggests that the current cash rate of 4.35 per cent may be contracting aggregate demand, creating the possibility for the Reserve Bank of Australia (RBA) to consider reducing its rate in upcoming meetings.
However, he acknowledges potential uncertainties, such as geopolitical developments in the Middle East, impacting prices.
Despite the decline, both Dr Castex and Professor Gigi Foster from UNSW Business School assert that the current inflation figure, standing at 3.4 per cent, is still relatively high compared to the RBA’s target range of 2-3 per cent.
If inflation continues to decline, the RBA may respond by lowering the cash rate, influencing economic borrowing costs.
This, in turn, could impact the housing market, potentially attracting more home buyers and putting upward pressure on home prices.
However, the relationship between interest rates, inflation, and the housing market is complex, influenced by economic conditions, employment levels, and global events.
As for the impact on everyday Australians, a high inflation rate can result in a decline in real consumption if income is not adequately adjusted to match the rising cost of living.
Both economists stress the importance of achieving a sustained and steady lowering of the inflation rate to ensure economic stability and a positive consumer outlook.
While signs of declining inflation are evident, challenges persist, and the RBA faces a delicate balancing act in navigating the economic landscape, the academics stated.
