CPI jumps…but it’s restricted to a few groups and varies across the nation

Posted on January 25, 2022 by Pete Faulkner - Inflation, Uncategorized

Headline CPI for the final quarter of 2021 has come in hotter than expected at +1.3% q/q (exp +1.0%) and +3.5% y/y (exp +2.8%). However, the increases are focused on 4 main expenditure groups;

Transport +12.5% y/y
Housing +4.0% y/y
Furnishings & H’hold equipment +3.6% y/y
Health +3.3% y/y

No other expenditure group was up more than 2.2% y/y with Communications (-0.5% y/y) and Clothing & footwear (-0.3% y/y) both falling. Indeed, even in those groups which saw large rises there was a good deal of geographic difference. Although housing (a large component of CPI) was up 7.2% y/y in Brisbane it was only at +1.9% in Sydney and +1.4% in Melbourne.

The Trimmed Mean and Weighted Median measures generally preferred by the RBA, as they strip out the more volatile items at the top and bottom of the price distributions, came in at an average of +0.95% q/q and +2.65% y/y; well inside (finally) the RBA’s target band of 2-3%.

The headline CPI data utilises data only from the Capital Cities. We have previously done some work to estimate regional CPIs for all the States and therefore construct a weighted All Australia CPI (you can find details about this methodology here). This analysis shows some very large regional variations across the country and an All Australia CPI of +1.3% q/q and +3.6% y/y.