Inflation hits new high

Annual inflation has risen to 6.1%, up from 5.1% in the March quarter, largely driven by new dwelling purchases, fuel and furniture, new figures from the Australian Bureau of Statistics show.

It signals further belt-tightening ahead as borrowers grapple with the double whammy of the increasing cost of living and rising interest rates, while businesses face staff shortages and supply chain disruptions.

The Consumer Price Index (CPI) for the June 2022 quarter, released on Wednesday morning, shows that annual inflation has increased to 6.1% since the June 2021 quarter (1.8% quarter on quarter).

Annual trimmed mean inflation (excludes large price rises and falls) increased to 4.9%, ABS said – the highest since the series was first published in 2003. It follows a CPI of 5.1% recorded in the March 2022 quarter.

Speaking to MPA before the official inflation result, AMP Australia senior economist Diana Mousina (pictured above left) said headline inflation was expected to peak higher.

In the September quarter, AMP forecasts showed annual inflation would reach 7% to 7.5%, she said.

“Higher inflation has been seen in large price rises for fresh food, driven by increases in commodity prices and the recent floods in eastern Australia which disrupted supply,” Mousina said.

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A lift in oil prices due to elevated demand and some supply constraints drove up petrol prices, she said. Supply issues, including the war in Ukraine, as well as supply constraints specific to Australia, including the shutdown of coal facilities, had led to higher gas and electricity prices.

“Rental inflation remains low but is starting to rise and asking rents are soaring, which is a sign that rental inflation, as measured in the CPI, will also lift,” Mousina said.

AMP Bank group executive Sean O’Malley (pictured above centre) said the dual effects of inflation and interest rate rises made it a tough time for Australians.

While the majority of the bank’s home loan customers were ahead on their repayments and were therefore in a good position to adapt to interest rate changes, O’Malley noted some borrowers may find the circumstances more challenging.

“We’re here to help customers understand what the increasing interest rate environment means for their mortgage repayments and household budgets. We have a dedicated team on hand to support customers potentially facing financial difficulty and provide personalised support,” O’Malley said.

“With the right support and adjustments, in the vast majority of cases, customers who find themselves in short-term difficulty, are able to navigate through it with the right help. The key message is not to hesitate to ask for help.”

It was worth reminding homebuyers and existing property owners to take a long-term view, he said. Borrowers could consider available options around structuring their home loan, the frequency of their repayments and other options, such as refinancing, in line with their financial situation.

“At the same time, increased interest rates will better support savers following a period of low rates. We remain focused on providing competitive rates for both our home loan customers and savers to help them achieve their investment goals,” O’Malley said.

Dino Pacella (pictured above right), head of third-party relationships at commercial finance platform Marketplace Finance, said price rises and increased operating costs coincided with staffing shortages and supply chain issues, making it a tough time for small businesses.

Pacella expected businesses were likely to endure these challenges through to early 2023 as current challenges worked their way through the economy.

“What small businesses can do for the remaining part of 2022 is focus on supporting their existing staff, particularly as many are working extra hours, bolstering their value proposition to their staff and look at new incentives to attract staff,” Pacella said.

As many businesses were impacted by supply chain issues, Pacella said there were options available to help to ease these pressures. Options included increasing inventory on popular products (where possible) and seeking out alternatives.

Businesses could stay on the “front foot” with clients by maintaining honest communication and using a stock management system to track levels and patterns, he said.

Read next: Inflation reporting needs to change, CPA says

Pacella said businesses that hadn’t yet implemented a financial back up plan should do so now. This would help them move beyond the current challenging period.

“To help with the rising operating costs, businesses can re-examine their financial books and look to cut costs where possible,” Pacella said.

Brokers with clients paying off business loans who were concerned by increasing operating costs and interest rate rises, could assist them with debt consolidation and refinancing of loans to secure more favourable terms, he said.

“If business require cash flow assistance, brokers can work closely with their accountants to work through the best path forward and assist in riding the wave of the current highly inflated market,” Pacella said.

As finance experts, brokers could provide that “touch of comfort”, he said.  Understanding the basics, such as what to look for when reviewing a business’s financials, what can be done to assist them with their existing facilities and having the right business partners would go a long way to making self-employed clients feel in control.

“With the continuing increase in broker market share at an all-time high and inflation rate the highest we’ve seen in years, now is the time for brokers to show the market that we’ve levelled up beyond simply a one-off transaction,” Pacella said.

Bank economists widely expect the official cash rate to rise by another 50 basis points on Tuesday, as higher inflation and a drop in unemployment to 3.5% keep the pressure on the RBA to get ahead of the inflation curve.