Australia’s inflation picture is shifting, according to the latest data from the Australian Bureau of Statistics (ABS). The Consumer Price Index (CPI) rose 2.7% over the 12 months to August 2024, down from 3.5% in July, offering a glimmer of relief. But while overall inflation may be easing, the reality for households is more complex. Prices are rising sharply in areas like housing and groceries, while sectors such as electricity and fuel are seeing steep declines, highlighting the uneven impact of inflation across the economy.
One of the areas hardest hit by inflation continues to be housing. Over the last 12 months, housing costs have gone up by 2.6%, which might seem moderate compared to other categories, but this is against a backdrop where rents have skyrocketed. Rental prices rose by 6.8%, continuing a trend fuelled by the high demand and tight supply in many Australian cities. Despite this, new dwellings only rose by 5.1%, staying steady since August last year, largely due to ongoing material and labour cost increases that builders continue to pass on to consumers.
Food and non-alcoholic beverages have been another key driver of inflation, rising 3.4% over the past year. The biggest price jumps were seen in fruit and vegetables, which surged 9.6%. This steep increase has been attributed to poor weather conditions and crop diseases affecting yields. Notably, the rise in costs hasn’t been uniform across all food groups. Dairy and related products actually saw a slight fall in prices, with a 0.2% decline over the year. So while your weekly shop might feel heavier on the wallet, some items like cheese have seen a welcome drop.
On the flip side, transport costs offer some relief. Transport, which includes automotive fuel, fell by 1.1% over the past year, driven by a notable drop in fuel prices. Fuel costs plummeted by 7.6% in August, a sharp reversal from the 4% increase seen in July. This decline is largely due to global factors, including lower demand for oil. The fall in fuel prices comes as a relief to households already grappling with higher living costs.
Electricity prices also made headlines, falling by a massive 17.9%, which marks the largest recorded annual drop for electricity. This steep fall is thanks to the expansion of the Commonwealth Energy Bill Relief Fund (EBRF), alongside various state government rebates that kicked in during July and August. Without these rebates, electricity costs would have seen a hefty 16.6% rise since June 2023. For many households, this will have made a noticeable difference to their monthly bills.
While these rebates are a temporary fix, they do help alleviate some of the immediate pressure on household budgets. Households in states like Queensland and Western Australia received sizeable rebates, with Queenslanders enjoying a one-off $1,000 rebate and Western Australians benefiting from $400 state rebates. Other states also saw reductions in electricity bills, but the Commonwealth support played the most significant role in lowering electricity costs across the board.
Insurance costs, on the other hand, continue to climb. Insurance premiums rose by 14% in the 12 months to August, unchanged from July’s increase. Rising costs for reinsurance, claims, and natural disasters continue to drive these premiums higher, and it’s unlikely we’ll see much reprieve here any time soon. Motor vehicle, house, and home content insurance premiums are all being impacted, so those renewing their policies will likely be in for a shock.
Alcohol and tobacco prices have also been steadily increasing, with a rise of 6.6% over the past year. Tobacco saw a particular spike, with a 13.4% increase, reflecting the ongoing efforts to reduce smoking through higher taxes and levies. Meanwhile, clothing and footwear prices have stayed more moderate, rising only 1.7%, with garments specifically up 2.7%. This suggests that, unlike other sectors, the fashion industry has been less affected by inflationary pressures.
Turning to recreation, holiday travel and accommodation costs rose by 2.8% in the 12 months to August, up from a mere 0.2% in July. While this shows an overall upward trend, the monthly figure for August saw a slight decline, down by 1.4%. Domestic holiday travel has softened as there were no major school holidays during this period, causing demand to dip.
As for broader inflationary trends, the trimmed mean, which is used to measure underlying inflation, fell to 3.4% in August from 3.8% in July. This measure excludes irregular or temporary price changes, offering a clearer picture of the underlying inflationary pressure in the economy. While still above the Reserve Bank’s target range of 2-3%, this easing indicates that some of the worst inflationary pressures may be behind us, at least for now.
Looking ahead, how inflation develops will largely depend on external factors, including global oil prices, supply chain disruptions, and domestic policy decisions. While sectors like housing and insurance remain stubbornly expensive, falling electricity and fuel prices provide a much-needed buffer for consumers. But with continued pressures in food and rental markets, the coming months will be critical for assessing whether inflation is genuinely subsiding or just taking a temporary pause.
For everyday Australians, especially those juggling rent, fuel, and groceries, the cost-of-living pressures are still very much present. While government rebates have offered temporary relief, the long-term trajectory of prices remains uncertain. Whether inflation will continue to ease or spike again is a question many will be asking as we head towards the end of the year.
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