CPI and Housing

The Consumer Price Index (CPI) for the June quarter was released this week by the Australian Bureau of Statistics (ABS).  CPI, which measures the level of price inflation in the economy, increased by 0.6% over the June quarter, taking annual headline inflation to 3.1% which; slightly above the Reserve Bank of Australia’s (RBA) target range for annual inflation of between 2% and 3%.  Despite the fact that core inflation was slightly outside of the target range, the RBA’s preferred measure of inflation, the trimmed mean and weighted median measure, came in at 2.7%.

Headline CPI Inflation

Source: rpdata.com, ABS

Housing is an extremely important component of the CPI calculation which is weighted across a range of different product categories representing a typical ‘basket of consumer goods.  When measuring the different items of CPI and their weighting, housing actually carries the greatest weighting of any group, contributing to 19.5% of the overall results for CPI.

CPI Weightings

Source: rpdata.com, ABS

Quarterly CPI results by category

Source: rpdata.com, ABS

When looking at the increase in the housing items over the quarter, overall housing costs increased by 0.6% (in line with the overall increase in CPI).  The sub groups of the housing numbers saw results vary dramatically.  Rents increased by 1.1%, utilities costs recorded no change over the quarter and other housing costs increased by 0.5%.

These sub-group numbers are then further broken down into expenditure classes.  Of all the expenditure classes relating to housing, the cost of gas and other household fuels recorded the greatest increase during the quarter, up by 1.7%.  The greatest fall amongst any housing sub group over the quarter was recorded in the cost of electricity which fell -0.6% over the quarter.

The strong increase in the cost of renting during the June quarter is a little surprising with the recent RP Data Rental Review report indicating that rental rates have generally been quite flat over the quarter (if not falling slightly).  RP Data are anticipating that during the next quarter costs associated with renting will likely continue to increase and we expect that this will start to be more strongly reflected in our numbers, not just the CPI figures.  When results for the September quarter CPI are available we expect that inflation in the costs of purchasing houses will ease as the rate of property value growth slows.  This slowdown has most notably been identified by the recent RP-Data Rismark Home Value Index results which can be found here.