Australian Inflation Less Severe Than Global Trend, But Risks Still Remain: Study

Shoppers look at the meat produce at Costco Perth in Perth, Australia, on March 19, 2020. Paul Kane/Getty Images

Australia has so far avoided the worst of the global trend of rising inflation, a research paper has found.

The study (pdf) from the Centre for Independent Studies, a think tank specialising in public policy research, has found that while most countries were now witnessing the highest rates of consumer price inflation in decades, with the United States being one of the worst affected economies as its annual consumer price inflation soared to 7.5 percent in January 2022, Australia is experiencing far lower growth in inflationary pressures.

The study noted that inflation in Australia had laid low until mid-year before gaining momentum in the three months to September and then speeding up sharply in the final quarter of 2021 to reach 3.5 percent in 2021, which was lower than the global average of nearly 4.5 percent.

However, this is still above the target band of 2-3 percent set by the Reserve Bank of Australia (RBA).

“Few forecasters believe that Australian inflation can rise towards the 5% to 7% rates seen in the US and Europe,” the CIS study said. “The consensus view is that inflation will reach a high point in 2022 somewhere below 4 percent.”

However, while Australia is not experiencing the same rate of inflationary growth as other countries around the world, the researchers warn this may be down to our economy lagging after the 2021 COVID-19 lockdowns placed two of the biggest states in the economy, New South Wales and Victoria, into a form of economic ‘hibernation.’

“At this stage, it is just as likely that we are simply lagging the global trend as judging our inflation situation to be fundamentally different to what is happening in other economies,” Warren Hogan, the author of the research and the former chief economist of ANZ Bank, said.

Shoppers gather to buy fruit and vegetables at a store in the suburb of Fairfield in Sydney, Australia, on July 9, 2021. Lisa Maree Williams/Getty Images

Hogan also warned there were strong signs Australia would be seeing a sharp increase in inflationary pressures after rising prices of petrol, consumer durables, and housing construction saw prices for goods and services rose 2.5 percent or more in 2021—the highest level recorded in six years.

“A rise in Australian inflation above 5 percent in 2022 cannot be ruled out,” Hogan said.

This comes as the conflict between Ukraine and Russia is causing oil prices to skyrocket, sparking concerns among Australian economists that a lift in inflation will not be far off.

“Inflation expectations rose 0.1 [percentage points] to 5.1 percent last week, its highest since December 2014,” ANZ head of Australian economics David Plank said on Feb. 22. “With petrol prices at record highs during the past few weeks, the lift in inflation expectations is not surprising.”