Inflation surge does not apply to everything

“EVERYTHING is going up” is the feeling among Aussie households as food, fuel, utilities, mortgages and rents rise quickly, but it’s not entirely true.

Despite annual inflation rising 7.8 per cent in 2022 – a 33year high, according to the Australian Bureau of Statistics – there have been pockets of positivity with prices, and in some cases costs have fallen.

A News Corp Australia analysis of new Consumer Price Index data examining almost 100 different product categories has found fats and oils rose the most in 2022, up 21 per cent, followed by domestic holiday costs climbing 20 per cent, and pets and pet products up 19 per cent.

A collection of staple foods also made the top 10 rises, with milk prices up 18 per cent, breakfast cereals up 15 per cent, cheese up 14 per cent and fruit and bread both rising 13 per cent.

However, child care prices fell 2 per cent, book prices were down 0.8 per cent and children’s footwear costs dropped 0.4 per cent.

AMP chief economist Shane Oliver said there was always a variation in CPI categories, but it was greater at the moment because of specific supply impacts such as recent floods affecting food production.

“The dairy area was significantly affected by the floods,” Dr Oliver said.

Gas prices surged 17 per cent in 2022 following Russia’s invasion of Ukraine, and while US gas prices had recently dropped sharply, Australian prices remained high, he said.

“There’s some concern that the government price caps have led to a reduced supply of gas, and it’s maybe having a perverse effect there.”

Child care’s 2 per cent price fall might reflect lower demand – particularly in CBDs – as more people worked from home, Dr Oliver said.

He said Australia’s inflation rate had peaked and “it’s probably going to fall down to 4 per cent, possibly a bit less, by the end of this year”.

“Some things that drove the rise in inflation will start to drop out, and we are in a slowing economy – businesses will be more inclined to discount to keep sales going.”

BetaShares chief economist David Bassanese said supply squeezes affected several products but other issues were at play too.

“It’s also strong demand seeing businesses pass on cost increases easily,” he said.

Inflation had peaked, Mr Bassanese said. “I think we have probably seen the worst, but the annual rate is going to look high for a while,” he said.

“To get ongoing inflation, you need to have prices continue going up as fast as they have gone up … prices may stay high, but not keep going up.

“If food prices level off or drop, the rate of inflation comes down.”

Areas where price increases were weak in 2022 included audio visual and computer equipment (up just 0.4 per cent), water and sewerage costs (up 0.5 per cent) and telecommunications services and equipment (up 1 per cent).