Headline inflation hits 6.1 per cent in the year to June

Experts believe inflation is here to stay, and it no longer appears that this bout of inflation can be quickly tamed or will resolve itself on the back of improvements in the supply chain.

Australia’s headline inflation jumped 6.1 per cent in the year to June, the highest increase in more than 20 years, with fruit and vegetables increasing 5.8 per cent for the quarter and fuel up 4.2 per cent. These continuing inflationary pressures will factor into the Reserve Bank of Australia’s considerations at its meeting on Tuesday.

The price of automotive fuel reached record levels for a fourth consecutive quarter. This comes as the downward pressure provided by the six-month reduction in the fuel excise is set to expire.

On the back of historically low levels of unemployment, consumer spending remains high, with demand for a broad range of goods and services continuing, particularly after long periods of COVID-19 lockdowns and isolation.

Spending on international travel has increased as border restrictions lifted, and total international passenger movements increased 412 per cent year-on-year to May 2022.

However, non-discretionary inflation is outpacing discretionary inflation, putting pressure on households on fixed and limited incomes who can’t cut back their consumption of essential goods and services such as food and fuel. “As the term suggests, essential services are very price inelastic,” Rebecca Billings, Commissioner at the Victorian Essential Services Commission, told viewers at the CEDA Economic Update livestream.

“That means it is unlikely that price increases or interest rate rises are going to reduce demand for these services. In fact, price increases in essential services are likely to exacerbate inflationary pressures in other sectors of the economy.”


The dramatic increase in fresh produce that consumers have been seeing in supermarkets over the past few months is reflected in the figures. Since the March quarter, vegetables prices have risen by 7.3 per cent.

Australian Food and Grocery Council CEO Tanya Barden said weather-related events have had a direct effect on fresh food and grocery supplies and overall food inflation.

“We've had the flooding in central Australia earlier this year, which meant that WA was cut off from the rest of the country and we had to divert product from Victoria up around through Queensland, NT and then over into WA,” she said.

“Rail line and roads were out of service for a considerable period of time. As well as those freight cost increases, the flooding has then continued on the East Coast of Australia, which has impacted fruit and vegetable supply, meat supply and also dairy supply and of course many of you will be familiar with the $10 lettuces that emerged over the recent times.”

Many of the current drivers of inflation are supply-side factors, including supply chain disruptions, labour shortages, and rising input costs. CEDA Senior Economist Cassandra Winzar said it is unlikely these will resolve quickly.

“In the UK, the US and much of Europe, inflation is running at closer to 10 per cent per annum,” she said.

“It no longer appears that this bout of inflation can be quickly tamed or will resolve itself on the back of improvements in the supply chain, as many were arguing just a few months ago.”

Tanya Barden also predicted that inflationary pressures would be around for some time.

“Unfortunately, consumers do need to understand that there is going to be 18 months at least where inflation is going to be above what has been normal,” she said.