Activity 5(j)

Activity 5j: CPI result for June quarter 2022

  1. The three major contributors to inflation over the year were Transport (13.1%), Housing (9%) and Furnishings/household equipment/services (6.3%).
  2. This is because the Communication category is only one of 11 categories within the CPI and it has a relatively low weighting of 2.4%. This ultimately means that inflation was caused by price increases in other categories, most of which have a higher weighting (e.g. housing and transport).
  3. This is because the housing category has a much higher weighting (23.2%) compared to the transport category (10.6%). accordingly, any given price increase within the housing category will have approximately twice the impact on the CPI compared to the same price increase occurring in the transport category.
  4. The temporary fuel excise relief these are affected that kept price increases within the transport category to be relatively low (2.3%) for the June quarter of 2022.
  5. A rate of growth in prices of 6.1% is not consistent with the achievement of price stability given that the RBA determines price stability to be achieved when the rate of inflation rests between 2 to 3% on average over time.
  6. Given that the global supply chain disruptions are likely to be temporary in nature, they will typically be removed from the core or underlying inflation measurements as they are temporary/one off effects (e.g. stripped out by the RBA when it removes the top 15% of price increases). This means that the headline rate of inflation will be higher than the underlying rate of inflation.
  7. This is because the annual price increases of 4.7% in the education category took place during the first nine months of the 2021-22 financial year (i.e.1 July 2021 to 31 March 2022.
  8. The annualised rate of inflation for the June quarter 2022 was 7.2% (1.8% X 4) which is higher than the annual rate of inflation of 6.1%. This highlights that price pressures during the June quarter of 2022 were higher than the (average) price pressures experienced during the previous three quarters. As such, it suggests that the annual rate of inflation of 6.1% under estimated the true extent of inflationary pressures existing in the economy at the time (i.e at the end of June 2022).
  9. The quarterly rate of inflation of 1.8% is not an accurate indicator of cost of living pressures for every Australian household. This is simply because every household has different spending patterns and the CPI only provides an indication of price pressures experienced by the ‘average’ Australian household.  To illustrate, given the large increases and fuel prices over 2022, an inner city Melbourne household with residents who do not own a motor vehicle will be affected less by cost of living pressures compared to a household with multiple vehicles.
  10. Following on from question 9, the household without motor vehicles during 2022 will be better off than a household with multiple motor vehicles.