‘Steady’ CPI should keep interest rates stable

The latest Consumer Price Index (CPI) figures could be a case of swings and roundabouts for older Australians.

The CPI rose just 0.6 per cent for the December quarter, a welcome result for households struggling with the cost-of-living crisis.

A steady CPI could also mean more purchasing power for pensioners.

Paul Versteege, a former policy manager at the Combined Pensioners and Superannuants Association says a fall or steadying CPI can increase the ‘dollar amount’ pensioners receive.

“High inflation equals high indexation, low inflation equals low indexation,” he says.

“While it may seem that you’re better off with high indexation, you’re not. Indexation maintains the purchasing power of the pension at the same level. 

“The only way to increase the purchasing power of the pension by indexation is for inflation to go negative and stay negative. You would be receiving the same dollar amount in the pension, but you could buy more with it.”

However, an annual CPI increase of 4.1 per cent should mean a few more dollars in pensioners’ pockets in March when the government releases its indexation decisions.

The government indexes the Age Pension twice a year on 20 March and 20 September, based on the CPI, the Male Total Average Weekly Earnings and the Pensioner Beneficiary Living Costs.

With the CPI increasing, age pensioners should expect a bit more in their accounts come 21 March.

On the flip side, people relying on interest for income may be in for some disappointment as the quarterly inflation rate has halved from September’s 1.2 per cent, with experts predicting the Reserve Bank of Australia (RBA) will keep interest rates on hold when it meets next week.

However, those with mortgages may see some relief on their payments.

Smallest since March 2021

The 0.6 rise in CPI for the December quarter is the smallest since the March 2021 quarter.

According to the Australian Bureau of Statistics (ABS), the most significant contributors to the December rise were housing (+1.1 per cent), alcohol and tobacco (+2.8 per cent), insurance and financial services (+1.7 per cent) and food and non-alcoholic drinks (+0.5 per cent).

Partially offsetting the rise in food were falls in meat and seafood (-1.2 per cent) and fruit and vegetables (-1.2 per cent).

The meat and seafood fall can be attributed to a large supply of meat coming onto the market as farmers destocked in anticipation of an El Nino weather season. It was reported farmers were selling live lambs for $1 each at some livestock sales last year.

Lamb and goat products fell 12.1 per cent and beef and veal fell 1.5 per cent.

Insurance

And if you think your insurance has shot up, you’re not imagining it. Insurance had a strong quarterly upward movement of 3.8 per cent, following a 2.8 per cent rise in the September 2023 quarter. 

“The increase in insurance was due to higher premiums across motor vehicle, house and home contents insurance. Over the past 12 months, insurance rose 16.2 per cent, making it the largest annual rise since March 2001,” said ABS head of price statistics Michelle Marquardt.

And if you haven’t already, you might want to give up cigarettes, which rose 7 per cent following the introduction of the 5 per cent annual tobacco excise indexation.

Annually, the CPI rose 4.1 per cent, with housing (+6.1 per cent), food and non-alcoholic beverages (+4.5 per cent), and alcohol and tobacco (+6.6 per cent) contributing the most. 

Interest rates

The modest 0.6 CPI rise has experts predicting the RBA will keep the cash rate steady. 

“The lower-than-expected December quarter consumer price index result should effectively kill off any lingering chance of an RBA rate hike next week,” Betashares chief economist David Bassanese told the ABC.

The RBA left the cash rate on hold at 4.35 per cent at its last meeting in December after raising it by 0.25 percentage points in November.

At that meeting, the board declared it was “resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome”.

Did you notice a significant change in your insurance or other household expenses? Why not share your experience in the comments section below?

Also read: Wholesale power prices halved in 2023, data finds

Written by Jan Fisher

Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.

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