A Deep Dive into Goods, Services, and Wages Growth | Uptain

A Deep Dive into Goods, Services, and Wages Growth


In Australia, inflation dynamics are evolving, with recent data showing a decrease in year-on-year terms. 

Despite this downward trend, inflation persists at elevated levels, influenced by strong domestic cost pressures and robust demand, especially in the services sector. While global supply chain improvements have been noted, goods inflation continues to exceed average levels. The September quarter’s headline inflation was shaped by volatile components and administered items, each exerting opposite effects. 
A Deep Dive into Goods, Services, and Wages Growth | Uptain
A Deep Dive into Goods, Services, and Wages Growth | Uptain
Expectations surrounding inflation have adjusted upwards but remain in alignment with the long-term target. Wages growth is notably robust, buoyed by a tight labor market and the prevailing high inflation environment. The Consumer Price Index (CPI) is poised for a 1% increase in the September quarter, translating to an annual rise of 5.4%, a reduction from its peak in December 2022. The underlying inflation, which strips out irregular or temporary price changes, showed less increase than expected, yet services inflation continues to be a significant factor. Trimmed mean inflation nudged up to 1.2% in the September quarter and 5.2% over the year, slightly below its peak in December 2022.

The widespread nature of high inflation is evident across various sectors. Services inflation, particularly in rents, and sustained pressures in goods categories like consumer durables and groceries, are key contributors. Around 60% of CPI categories exhibited price growth exceeding 3% in the September quarter. Inflation rates for most goods and services are notably above historical averages, with volatile items and government policy changes producing mixed effects. Electricity rebates and increased childcare subsidies have helped to temper headline inflation.

Services inflation remains significant due to domestic cost pressures and strong demand. Market services, excluding domestic travel and telecommunications, witnessed a notable increase in prices, reflective of domestically generated inflationary pressures. Rents, in particular, have seen a significant rise, driven by tight rental market conditions and housing supply shortages.

Goods price inflation has moderated, benefiting from better global supply chain conditions and a decrease in raw materials inflation. The easing in consumer durables and grocery inflation is a positive sign, although domestic factors like labor and non-labor costs continue to exert upward pressure on final goods prices.

Utility prices have seen a notable increase, particularly in electricity, though partially offset by government rebates under the Energy Price Relief Plan. Gas prices remained stable in the quarter after significant increases over the past year.

Inflation expectations are well-aligned with the target, with robust wages growth evidenced by a 3.6% rise in the Wage Price Index. Public and private sector wages have both seen significant increases, with the private sector leading in wage growth. The upcoming quarter is likely to see further wage growth, influenced by award and minimum wage increases.

Public sector wage policies and administrative decisions are set to support wages growth in the short term. Real base wages have shown signs of stabilization, with a slight decline in the June quarter. However, real employment income has increased, offsetting the decline in real base wages through various compensatory factors.

Inflation’s impact varies across income distributions, with lower-income households feeling a greater burden. Cost-of-living indices have eased in the September quarter for most household types, but remain high, especially for lower-income households.


Other articles