Inflation expectations hits highest in ten years

The Roy Morgan Inflation Expectations Index for July has risen 0.2 percentage points to 5.9 per cent to record its highest monthly rating in ten years since August 2012.

The index, which measures the expectations of around 5,000 Australians based on questions related to prices and the rate at which they are forecast to increase or decrease, also grew by 1.8 percentage points from last July.

This comes despite drops in April and May to 5.3 per cent (down by 0.5 percentage points from March) after former Federal Treasurer Josh Frydenberg announced the petrol excise cut of around 25 cents per litre.

“Over the longer-term Inflation Expectations are now up 1.8% points from a year ago, and up 2.5% points since July 2020 (3.4%), when the early stages of the COVID-19 pandemic caused a plunge in the indicator to a record low of only 3.2%,” Michele Levine, Roy Morgan chief executive, said.

“The Inflation Expectations of 5.9% in July are in line with the annual inflation released by the ABS for the year to June 2022 of 6.1% – the highest for over two decades. The Roy Morgan Inflation Expectations figures, derived from surveying thousands of Australians each month, correctly foretold the official ABS figures released in late July.

“The increasing inflationary pressures in the economy have led to the RBA raising interest rates by a total of 1.75% points to 1.85% since early May. The rapid increase in interest rates is the fastest increase to official interest rates for nearly 30 years when the RBA hiked interest rates by 2% points to 7.5% over three months from October – December 1994.”

Tasmanians also held the highest inflation expectations in July at seven per cent, followed by New South Wales at 6.3 per cent and Queensland at six per cent – all above the national average.

South Australia, Western Australia and Victoria recorded the lowest inflation expectations, with 5.8 per cent and both 5.4 per cent respectively.

“One positive that is worth mentioning is that on a weekly basis Inflation Expectations peaked at 6% in the fourth weekend of July and have since declined modestly in the last two weeks,” Levine said.

“However, the Federal Government’s commitment to restoring the petrol price excise to its full amount at the end of September will again put very visible upward pressure on transport prices.

“The restoration of the full petrol excise would increase the average price of a litre of petrol by nearly 25 cents overnight.”