The RBA will be more concerned about the underlying measure of inflation, known as the “trimmed average,” which excludes the up and down swings in items such as food and gasoline.
Underlying inflation was no less than 1.7 percent in the December quarter and 6.9 percent on an annual basis. That’s significantly higher than the 6.5 percent the RBA expected and above 6.1 percent in the September quarter.
Treasurer Jim Chalmers summed up the situation succinctly on Wednesday.
“Our hope is that inflation is now at its peak, but it will be higher than we would like for longer, even on the other side of it,” Chalmers said.
The RBA hopes that the ultra-high inflation rate of 9.5 percent for consumer durables will now begin to ease, as it has in the United States and Europe, due to lower shipping costs and improvements in supply chains.
Services inflation is high, but less high at 5.5 percent.
Inflation is now entrenched and broad-based across the economy.
A rebound in travel following COVID-19 lockdowns contributed to a 13.3 percent increase in prices for domestic leisure travel and accommodation in the three months to December 31.
Electricity prices were also sharply higher, up 8.6 percent in the quarter.
Clothing and footwear prices rose 2.6 percent for the quarter and an unusually high 5.3 percent annually, due to strong consumer demand and fewer discounts from retailers.
Price increases for new housing construction have been above average due to high labor and material costs, although inflation for new housing is decreasing from extremely high levels.
There were also indications that inflation accelerated in December, partly due to the explosion in holiday costs.
The monthly inflation indicator rose 8.4 percent in the 12 months to December, following annual increases of 7.3 percent in November and 6.9 percent in October, according to the Australian Bureau of Statistics.
Inflation is expected to have peaked, as suggested by this week’s National Australia Bank survey, which showed that business input costs fell and wage pressures eased.
But how quickly inflation will decline is highly uncertain.
From here, wage data on Feb. 22, economic growth numbers on March 1, and the state of the job market will be the next key factors influencing the RBA exactly when it feels comfortable taking its foot off the interest rate pedal.