Your bank balance might just catch a break this month. New data from the Australian Bureau of Statistics shows that inflation dipped to 4.2 per cent in April, down from 4.6 per cent in March. It’s a welcome bit of relief for anyone clutching their wallet, especially with the cost of living feeling like a persistent headache lately.
Petrol prices finally cooled off after a nasty jump, thanks to the federal government’s decision to halve the fuel excise. That move pulled the headline inflation number back from its three-year high, but don't go throwing a party just yet. Even with that relief, liquid fuel prices are still sitting about 23.5 per cent higher than they were in February, right before the war between Iran and Israel sent global energy markets into a tailspin.
The real issue is that the extra costs are leaking into everything else you buy. Postal services saw a 6 per cent hike in a single month, leaving them 12.4 per cent more expensive over the year. Building a house has become a luxury sport. Construction costs jumped 7 per cent in April as builders offloaded their own fuel and material surcharges onto anyone trying to secure a roof over their heads.
Treasury analysis shows that our cut to the fuel excise reduced headline inflation by around half of a percentage point.
Treasurer Jim Chalmers, who is balancing the federal budget while trying to keep the economy from crashing, noted that this specific fuel relief is set to expire on June 30. He doesn't seem keen on extending it, which means we might be back to square one before mid-year. Meanwhile, the shadow treasurer Tim Wilson reckons the $250 tax offset promised in the budget will be long gone by the time Christmas rolls around, eaten up entirely by these rising prices.
Investors have reacted with a collective sigh of relief, immediately slashing the odds of an imminent interest rate hike. Just last week, financial markets were nervous wrecks, giving a 50-50 chance of a rate rise before December. Now, they’ve calmed down, pinning the chance of an August rate hike at just one-in-three.
HSBC Australia chief economist Paul Bloxham believes the Reserve Bank will hold steady for now. He notes that there aren't many signs yet that fuel costs have fully infected every corner of the market. However, he cautioned that the local economy is losing momentum faster than a flat tyre on the M1. Sentiment is cratering, and the latest employment figures suggest we're already in an economic downturn.
The Westpac-Melbourne Institute leading index, which tries to predict where we’ll be in nine months, has dived deep into negative territory for two months straight. Matthew Hassan, the head of macro-forecasting at Westpac, confirmed this is the first back-to-back drop since 2004. It’s a sign that the gears of the Australian economy are grinding to a halt.
Carolyn Hewson, a member of the Reserve Bank’s interest rate setting committee, warned that while oil isn't as central to our economy as it was back in the 1970s, we aren't totally immune. The danger now is "second-round effects," where businesses and workers start baking these high costs into their expectations for the future. If people start bargaining for higher wages just to keep up with the price of a tank of petrol, the bank might be forced to act to curb rising inflation.