Australian prices rise fastest in two decades

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Rising prices come as Prime Minister Scott Morrison runs a tough election campaign.

Australian consumer prices rose at the fastest pace in two decades in the last quarter as gasoline, housing and food costs soared, fueling speculation of a rate hike as early as next week.

Rising inflation comes as Prime Minister Scott Morrison battles a tough election where the rising cost of living has become a major concern among voters.

The data also supports arguments that the Reserve Bank of Australia (RBA) no longer needs to keep interest rates at an emergency low of 0.1 percent and should tighten it soon, perhaps even during its policy meeting on May 3 instead of June.

Markets quickly narrowed the odds of a hike to 0.25 percent next week, although many still prefer a hike in June, as such a sudden move would set political ripples so close to the May 21 election.

“We now expect the RBA to rise 40 basis points to 0.5 percent initially in June,” said Andrew Boak, an economist at GS Macro, who sees a series of quarter-point moves to a final peak of 2.5 percent.

“The combination of above-target inflation, an economy that was initially resilient to rate hikes, and a more aggressive response function is shifting risk onto a steeper and higher path for rates.”

Wednesday’s data made for painful reading as the consumer price index (CPI) rose 2.1 percent in the first quarter, beating market forecasts of a 1.7 percent increase.

The annual rate rose to 5.1 percent, from 3.5 percent in the previous quarter and the highest since 2001.

A closely monitored measure of core inflation, the trimmed average climbed a record 1.4 percent in the quarter, making the annual pace at 3.7 percent the highest since early 2009.

That marked the first time since 2010, core inflation had surpassed the Reserve Bank of Australia’s (RBA) 2-3 percent target, a radical reversal from recent years when it consistently underperformed.

“This reflected the broad nature of price increases as the effects of supply disruptions, rising shipping costs and other global and domestic inflationary factors poured through the economy,” said Michelle Marquardt, head of price statistics at the Australian Bureau of Statistics. †

Gasoline led the way with a gain of 35 percent for the year, while the cost of new homes rose a record 13.7 percent. Food prices also rose in the first quarter as a result of high transport, fertilizer, packaging and ingredient costs.

Tim Harcourt, chief economist at the Institute for Public Policy and Governance (IPPG) at the University of Technology Sydney, said the rise was largely driven by rising costs for education, health care and housing.

“Not a wage price spiral like the inflation of the 1970s and 1980s known as stagflation,” Harcourt told Al Jazeera. “The policy should be to try to raise wages now.”



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