Why Inflation Remains Sticky

Australians may be cutting spending, but inflation remains stubbornly high because households are only one part of the equation.

CommBank analysis says annual inflation eased to 3.5% in July, but underlying inflation remained at 3.6%, still well above the Reserve Bank’s target.

Housing remains a major contributor, with housing-related costs rising 5% annually, including a 5.7% increase in new dwelling construction costs and 3.6% growth in rents.

Global energy costs, weak productivity and strong demand for workers and materials from government, business and major infrastructure projects are also keeping pressure on prices.

The impact is uneven across households. CommBank data shows spending by Australians aged 65-plus increased 10.1% annually in June, compared with just 4.2% among 25-to-34-year-olds.

RBA Deputy Governor Andrew Hauser acknowledged the frustration: “People want inflation down. People are furious about inflation.”

The challenge for the RBA is bringing inflation under control without unnecessarily weakening employment and economic growth.