Finance and Coffee
19 days ago · 3 min read
(Words by Alexa Tran)
Inflation picked up in the second half of 2021, largely due to a strong demand in housing construction and increased consumption opportunities as COVID-19 restrictions eased.
Combined with pandemic-related disruptions and the on-going war in Ukraine, they have knock-on effects such as soaring energy costs and acute material shortage.
This leads to higher inflation rates. The annual inflation hit 5.1% as of March 2022 – the highest annual rate since 2001.
Fuel prices hit a low around June last year, which may very well be due to all the widespread restrictions at the time. When the time comes to recover, fuel prices have risen for seven quarters in a row and reached a record of 35.1% in the 12 months to March 2022.
As you can see, fuel price movements correlate highly with the overall consumer price movements.
The inflation rate is clearly way above the RBA’s target range of 2-3%. It has prompted the RBA to call for cash rate hikes as an attempt to delicately balance inflation atop of economic growth.
In May 2022, in response to inflation, the cash rate was raised by 25 basis points. This week, it was raised by 50 basis points – the biggest hike since February 2000. It’s now at 0.85%
Inflation is also known as wage theft. People have to fork out more from their salary to pay the added monthly costs. They actually earn less.
On top of that, we have had two rate rises within a month. As a result, the consumer sentiment has weakened quite a lot and quite fast. It’s a reality check for them.
Consumer sentiment is definitely affecting the housing market conditions. Auction clearance rates fell quite significantly across capital cities.
Total housing loan commitments also lowered.