CPI data just in - looks like inflation is on the ups once again.
The ABS (The Aussie Bureau of Statistics) has announced that CPI has risen by 1.9% in the December 2022 quarter. CPI’s risen a total of 7.8% over the last twelve months.
For some context, in December 2021, CPI rose by 3.5% over twelve months, and in December 2020, it rose by 0.9% over twelve months.
Wait wait, what’s CPI again?
Have you noticed prices increasing, from petrol, groceries to the trustee 7/11 $1 coffee that’s crawled upwards to $2? And have you been hearing about rising inflation NON STOP for months?
Well, CPI aka consumer price index is the thing we actually use to measure inflation. When grandma hits you with a “back in my day, a loaf of bread only cost .50¢”, CPI comes through with the facts beyond the anecdote.
~Formally~, CPI is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services.
Bruh…what? How do they calculate that?
Every quarter the ABS collects prices on a tonne of items across categories like housing, food, transport, health and more and compares it to the prices for those items in the previous three months.
The ABS aggregates these (clubs them together) to work out the CPI for the entire basket of goods, and therefore the rate of inflation.
The actual process is more mathsy than that, but that’s the gist of it.
What does this mean for the cash rate?
The CPI announcement gives us an indication of how healthy the economy is looking. As we know, over 2022 inflation in Australia has picked up from 1.4% in Jan 2021 (meaning you’d barely notice the changes to the price of coffee) to 7.3% in the September quarter (meaning you’d definitely notice the changes to the price of coffee).
And the RBA has been trying to contain it by hiking up the cash rate each month since May 2022. If you want a refresher on the cash-rate, here’s the 101.
The RBA sits down on the first Tuesday of every month (next one being 7th of February) to assess inflation.
They’ll have a look at the CPI as well as a bunch of other data, such as the CPI in the US and set the cash rate accordingly.
Seeing a fast rise in inflation over the past couple of years does seem a little intense at first.
But some experts are saying that this is the inflation peak and we’ll be seeing prices cool down in the year ahead of us.
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