The recent ABS report for the December quarter shows that inflation rose to 7.8 per cent over the 12 months to the December 2022 quarter.
“The annual increase for the CPI is the highest since 1990,” ABS head of prices statistics Michelle Marquardt said.
According to the ABS figures released on January 25, annual inflation for year to December 2022 was being driven by a steep rise in the cost of new dwellings, up 17.8%; domestic holidays, travel and accommodation, up 19.8%; and fuel costs, up 13.2%.
Construction costs on new homes, increasing home loan rates and large rental increases are some of the main drivers pushing up the cost of living for Australian households.
Increasing costs of labour and materials, construction supply chain problems and a critical labour shortage have all contributed to the increasing costs for new construction.
Surging rental prices have resulted from a rapid flow of new residents from capital cities to regional areas, and the supply of new homes
has not kept up with demand. Landlords have also sold rental properties in the face of higher interest rates and strong buyer demand,
further reducing the number of available rental properties.
The onset of the COVID-19 pandemic led to a sharp drop in both international and domestic tourism and while domestic travel has rebounded far more quickly than international travel, it remains below pre-pandemic levels.
Reports show that domestic travellers are staying longer than they did before the pandemic, spending more on tours and experiences to explore Australia and this higher spending reflects an increase in domestic travel prices.
The biggest contributor to increasing costs has been finding and keeping sufficient labour to service rebounding tourism demand. The tourism industry lost many experienced staff during the pandemic – and so when domestic tourism began to recover, the sector had to rapidly hire workers in a tight labour market.
Furthermore, natural disasters causing food shortages, increasing food prices and cost of labour have all driven up prices for the
hospitality industry.
Rising fuel prices increase the cost of transporting goods and services, and as a result worsen inflation by raising the end price that customers pay for all goods.
In 2022, Petrol prices reached record-breaking highs both for unleaded and diesel. The main factors leading to volatile fuel prices include the hangover from the COVID-19 pandemic, Russia’s invasion of Ukraine, unrest in China and fears of global recession, all causing OPEC countries to clamp down on supply, thus increasing the cost of the barrel.
No doubt that SMEs have been hit hard in recent times. Small businesses have experienced increasing costs in goods, supply chain issues and labour shortages, all of which has led to small businesses generating lower margins.
On the flip side, consumers are tightening their belts to manage increasing household costs which in turn can often equate to less sales.
Complicating the issue is that if a business owner needs to borrow working capital, they must pay a higher amount, as the RBA continues to increase interest rates.
The current economic environment demands the need for careful cash
flow management.
Cash outflows must be well-timed to match cash inflows from customer revenues. On the revenue side, small businesses must carefully gauge
when they have ‘pricing power,’ the capacity to pass on cost increases to the customers without excessively hurting demand.
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