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Headline Inflation Awakens While Wage Growth Remains Subdued in June

18 Aug 2021 2:56 PM | Dr Marcus Smith

Consumer Price Index (CPI) figures released by the Australian Bureau of Statistics (ABS) for June 2021 show headline inflation spiked over the quarter by 0.8% to an annual rate of 3.8%.

While the headline rate was greater than the Reserve Bank of Australia's inflation target of keeping core inflation between 2-3% over the medium term, the underlying statistically-adjusted measures including the trimmed mean (the average percentage change after stripping 15% off each side of the ordered expenditure class distribution) and the weighted median (the seasonally-adjusted percentage change at the middle percentage change in the ordered expenditure class) remained below the target range at 1.6% and 1.7%, respectively.

The ABS attributed the quarterly spike in national headline inflation to factors including a rise in automotive fuel driven by a recovery to global oil prices following COVID-19 lockdowns, annual increases to private health insurance premiums, and rises to fruit and vegetable costs due to a shortage of pickers and extreme rainfall events on the east coast of Australia including the impact of Cyclone Niran on banana production.

Accordingly, the pundits are expecting this spike in headline inflation to be only temporary.

Across capital cities, the highest annual headline CPI increases were recorded in Darwin (+6.1%), Brisbane (+4.9%) and Canberra (+4.8%).

Breaking down headline inflation by category for Brisbane shows that the largest annual increases were recorded for furnishings, household equipment and services (+18%), transport (+11.8%), alcohol and tobacco (+6.5%), and health (+5.6%).

Property prices have been rising also at a much greater rate than consumer price inflation across the nation.

The most recent national Residential Property Price Indexes from the ABS shows that over the year to March 2021 the weighted average of residential property prices across Australia's capital cities grew by 7.5% over the year, while the largest annual increases by capital city were recorded in Canberra (10.9%), Hobart (10.2%), Perth (9.0%), and Brisbane and Adelaide (7.5%).

While home owners and investors have benefited by rising asset prices over the year, however, wage growth remains subdued across the nation.

Looking at Queensland in particular, while public sector wage growth had been rising at a faster rate than in the private sector for most of the last five years it has grown at a relatively slower annual rate than the private sector over the past two quarters.

Moreover, annual wage growth in both Queensland's private and public sectors has been below Brisbane CPI inflation for the past two quarters also, with annual inflation to June 2021 recorded at 2.0% for the private sector and 1.3% for the public sector.

Finally, looking at wage growth nationally by industry sector to June 2021, the highest annual growth rate was 2.6% recorded for workers within Other services, which the ABS  notes "includes a broad range of personal services; religious, civic, professional and other interest group services; selected repair and maintenance activities; and private households employing staff".

Other industries where relatively higher annual wage growth was recorded than the 1.8% national rate for all industries includes Professional, scientific and technical services (2.5%); Construction (2.2%); Education and training (1.9%); and Health care and social assistance (1.8%).

Industries where the lowest relative annual wage growth was recorded includes Arts and recreation services (0.9%); Administrative and support services (1.0%); Rental, hiring and real estate services (1.1%); Information, media and telecommunications (1.2%); and Electricity, gas, water and waste services (1.3%).  

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