Price pressures remain concerning, business cautions

Inflation rose to 7.8 per cent in the December quarter — the fourth consecutive quarter to show a rise greater than any seen since the introduction of the Goods and Services Tax (GST) in 2000.

For businesses, it means increasing price pressures and the very real prospect that the Reserve Bank of Australia will increase interest rates again when it meets in February.

Australian Chambers of Commerce and Industry chief executive Andrew McKellar said the elevated level of inflation is of concern for business and underlines the importance of the government ensuring its budget and broader policy settings are right to reduce inflationary pressures.

“With price pressures continuing to increase, it is far too soon to declare inflation has been beaten,” he said.

“Even if inflation is peaking, it is doing so at a three-decade high. The Reserve Bank is right to be wary about high prices persisting. Until there is a very definite, durable decline in inflation, the RBA is likely to press ahead with a rate rise at its February meeting.

“For business, international supply chain snags continue, the labour market remains tight, and energy prices continue to increase.

“Surging demand in the lead up to the Christmas holidays was a key driver of inflationary pressures, with price rises recorded across travel, accommodation, food, and other discretionary expenses.

“The Reserve Bank has a difficult path out of the current high inflation environment and must be cautious that its next steps don’t squeeze the life out of households and businesses.

“The task for the government in the upcoming May budget will be to build confidence that public finances are being put in order. Now is the time to make very serious progress in the task of budget repair.”

Innes Willox, CEO of the national employer association Ai Group, said the CPI numbers reinforce the serious threat that inflation poses for the year ahead.

“While the 7.8 per cent annual rate of increase is a bit lower than the Reserve Bank’s most recent forecast, it has also indicated that it is closely monitoring ongoing price and wages increases,” he said. 

“Taming the inflation tiger will require moderation of prices and wages over the period ahead.”