Aussie CPI inflation picks up in August

Australia's August 2023 CPI Jumps 5.2% Year-on-Year. The monthly Consumer Price Index (CPI) indicator rose 5.2 per cent in the 12 months to August 2023, according to the latest data from the Australian Bureau of Statistics (ABS). The most significant contributors to the August annual increase were Housing (+6.6 per cent), Transport (+7.4 per cent), Food and non-alcoholic beverages (+4.4 per cent) and Insurance and financial services (+8.8 per cent).

Stephen Miller from GSFM suggests that third or fourth-quarter wage and CPI statistics might compel the bank to adjust tactics again. He brings attention to the hazard of a damaging cycle of wage and price hikes, instigated by greater salaries and international factors. Stephen also mentions the inflationary effect of the FIFA Women’s World Cup, despite not considering it to be a major factor. Stephen wraps up by hypothesizing a potential halt in action by the bank's Michelle Bullock in October due to the complex juggling act she faces amidst different pressures.

Find the full unedited transcript of this interview below:

With Stephen Miller from GSFM. So a re acceleration of the inflation from July. How much of it really is these higher fuel prices? Oh, I don't think it's just high fuel prices. You know,

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there's other things in there. You know, you've got you've got some sort of particularly pronounced growth still in the services sector, which I think will worry the RBA. I think the way to sort of view these numbers is they're not great, but they're not poor and they're certainly not locks. Well, I wouldn't call them Goldilocks either. I don't think they're good enough for the RBA to relax that rhetoric around. Well, we, we stand ready to raise rates if that proves to be the case. And again, I can see to see in these numbers, there's some little nascent concerns that given what we know, what's coming down the pipeline, particularly in terms of wage increases and what we've seen in terms of wage increases, you know, you look at that Seaq index that was released, I think yesterday, the day before that, I can still foresee a circumstance where the September quarter CPI, the September quarter wage numbers or indeed the December quarter wage and CPI numbers forced the RBA's hand again. So they're not Goldilocks, but they're certainly not bad

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enough or poor enough for the RBA to sort of particularly an RBA that's cited or a data dependent process for them to, I think, enact a rate increase when they meet on Tuesday. Well, I think we kind of knew that. But to your point, it was going to be what happens with the quarterly print, right? And that's going to be out in October. So what does this month feed into that, do you think?

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This month it's a re acceleration. It's a broader measure that we get on

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in the quarterly number. It encompasses more of the service space. And I think there's this probably means there's a little upside to the RBA forecast. Not a lot, but a little upside to the RBA forecast, which means that a rate increase has got to remain on the agenda for the November meeting. If the CPI is poor enough. You know, I'm sort of thinking you need a quarterly increase, maybe above that 1.1, 1.2, 1.3, something like that for the trimmed mean, which I'm not saying that's extraordinarily likely, but it's not something that you could safely rule out on the basis of these numbers. You mentioned some of the nascent factors driving into this. What specifically are you looking at? Because if we do have the pick up in wages, for example, isn't that just being offset by the fact that we're paying more for food for fuel? Oh, of course it is. But, you know, as I said before, there's no such thing as painless disinflation and those acceleration in wages coming off the the Fair Work Commission decision and other things, you know, yes, of course, that sort of feeding

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into, you know, workers seeking to maintain their living standards, of course, that's sort of feeding into their wage claims or wage aspirations. The unfortunate thing is that this is how and I'm not saying this as the most likely scenario, this is how wage price, vicious circle start. I don't want to use the term spiral because it's a bit alarmist, but let's call it a vicious circle. And that's how it starts, that there's got to be a break somewhere. Because bear in mind, a lot of these aren't a lot of those costs that firms are bearing. If they have to pay higher wages, it means a crimping in their profit margins. So, you know, something's got to give. And if it's a bit in profit margins and it's a bit in wages, workers aren't going to be perfectly compensated for the increase in prices because a lot of that has come from global influences. But what the RBA has to do is to stop that developing into a vicious circle. And the reason it does the the mechanism by which it does that is raising rates and sort of meaning that wage

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increases and price increases, the inflation genie doesn't get out of the bottle. That's that's there's no such thing. I keep saying there's no such thing as painless disinflation. There is inflation anxiety, though, as you've pointed out, to what kind of seasonal influences did we see? Because we had the FIFA Women's World Cup on at the time. Well, it's interesting you say that, because if I look at the data here, there was quite an acceleration in the seasonally adjusted measure, annual measure of inflation. It went from 4.9in July to 5.5. How much of that is down to the Women's World Cup? I don't know. You know, everyone was out well, every pub was packed.

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I think that's that's true. I mean, I don't see I'm trying to look through it through here. I look non-alcoholic. I can't see an alcohol and tobacco. Alcohol. Fairly modest increase 4.7 like you, I was down at the local pub sort of watching these things. It doesn't appear on the basis of this that alcohol prices sort of did have an outsize impact on on on what took place in August. So so let's sort of say that, you know, we're not dealing with a one off associated with the Women's World Cup. As enjoyable as that was, there's there's a bit more of an ongoing problem here. Not like I say, it's not it's not horrible, it's not uncontrollable, but it's still there and it still means an RBA policy. Rate increase is inflation problem, not a drinking problem there. Well, you're obviously talking about yourself. All right. Let's talk about what Michelle Bullock is going to do there, because as you say, a pause in October, but it's the Melbourne Cup day that we've really got to watch out. Well, I think so, a Melbourne Cup day and it's all contingent upon what we see with that

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September quarterly number. And even then it's probably not over. I think, you know, I can see the wage and price momentum continuing to 2024 and she's got a very, very difficult balancing act. I think she's quite capable of managing it. You know, we know the RBA forecast for quite tepid growth, for some increase in the unemployment rate, but you've got to balance that against, you know, ongoing inflation pressure. There are reasons associated with the wage setting framework in Australia with our industrial

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relations framework, why inflation might be a bit more sticky. So that just complicates her task a bit. So she's got to manage that softening growth, that softening labor market and at the same time get inflation down. It's a very difficult balancing act. You know, the previous RBA governor talked about the narrow path. So far. The RBA seemed to be managing it. But you know, there are only a half way across Niagara Falls and the balancing pole is getting pretty heavy. So, you know, it's a difficult task. I certainly don't think it's beyond her. I think she's a very, very capable public policy economist. She's comfortable in the academic world. She's a very good people manager. She's a very good communicator. So I hope and think she can manage it. But I don't pretend for a moment that it's not a difficult task.