Westpac’s chief economist has sounded the alarm about government policy pushing up inflation after price rises soared once again in the 12 months to October.
Watch the full interview with Westpac’s Luci Ellis from 11am on Business Now with a SkyNews.com.au subscription.
The Australian Bureau of Statistics on Wednesday revealed that inflation lifted to 3.8 per cent, exceeding economist expectations and hurting hopes of future interest rate cuts.
Reacting to the rise, Westpac’s chief economist Luci Ellis said the main contributors to inflation picking up were outside Australia, but noted there were some government-induced pressures.
“None of this is about strong global domestic demand pushing up prices,” Ms Ellis told Business Weekend.
“There are some supply things going on and there are some government policies – at all levels of government – that have been running those parts of the inflation basket higher than the average.
“That doesn’t mean we shouldn’t be concerned. There are some elements of the rest of the inflation basket that are a little bit high, but we shouldn’t overblow this result.”
October marks the fourth month in a row where the CPI has increased and comes as the government is accused of fueling the pro-longed cost of living crisis.
Total public spending is worth about 28 per cent of GDP and has surged in recent years due to large-scale transport projects.
AMP’s Diana Mousina said public building and engineering construction activity has been trending higher since 2015 and recently reached a record level of around five per cent of GDP.
“While private sector construction remains larger, it has been on a downward trend and has essentially flatlined since 2020 at about eight per cent of GDP,” Ms Mousina told investors.
Meanwhile, the largest contributors to inflation’s rise in the 12 months to October were housing, up 5.9 per cent, while food and non-alcoholic beverages and recreation and culture both rose 3.2 per cent.
Electricity costs spiked 37.1 per cent in the 12 months to October as various state government rebates have been used up by households and the impact of the Commonwealth Energy Bill Relief Fund rebates rollout.
Without any impact from the federal and state electricity rebates, electricity prices jumped five per cent.
Ms Ellis said the recent figures showed there continues to be “a bit more inflation in the system than people thought”.
“So much of the very high numbers within the overall basket were driven by policy – things like water bills in Sydney, the electricity rebates over the year winding off,” she said.
“There have also been some of the usual one off things on certain foods because of weather and supply shortages – beef and veal was up quite a bit, lamb was up quite a bit and while egg prices are now falling, over the year they are still well up.
“Coffee is a known global issue.”
Trimmed mean inflation – the middle 70 per cent of price changes core to the RBA’s rate call – rose to 3.3 per cent from 3.2 per cent in the month prior.
This was well outside the RBA’s 2-3 per cent target band.
Despite the large rise over the past 12 months, inflation was unchanged on a monthly basis in October.
Treasurer Jim Chalmers acknowledged the recent uptick of inflation was “higher than we’d like” but lauded the monthly figure where prices remained relatively unchanged.
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