ABE Weekly – Inflation the defining challenge in our economy

ABE Weekly Newsletter

Friday 03 February 2023

ABE Weekly 3 February 23 PDF VERSION

Key Points

 

• CPI increased to 7.8 per cent over the twelve months to December (AUS).  
• Cash rate is 3.10 per cent (AUS). 
• IMF’s expected global growth is 2.9 per cent.  
• The annual inflation rate for the United States is 6.5 per cent for the twelve months to December 2022 (US).  
• The federal funds rate is 4.25(1) per cent to 4.50(2) per cent as of December 14th, 2022 (US). 
• The Euro’s area annual inflation was 9.2(3) per cent in December 2022 (Euro). 
• The ECB raised the eurozone interest rate to 2.5 per cent. 
• The CPIH rose by 9.2(4) per cent in the 12 months to December 2022.  

Australia

Treasurer Jim Chalmers said that inflation was the defining challenge in our economy in 2022 and will be a defining challenge in our economy in 2023. According to the “Australian Bureau of Statistics” (ABS), the “Consumer Price Index” (CPI) increased to 7.8 per cent over the twelve months to December. As well as in the year to the December quarter, goods inflation increased by 9.5 per cent while services inflation increased by 5.5 per cent(5).  

It is expected now that prices of goods will slow down, as we move away from COVID. During COVID, individuals moved from spending on services to renovating their homes and buying goods. However, economies are open again, so individuals are shifting back to buying goods. Let us remember that the Reserve Bank of Australia (RBA)’s target is to keep rates at 2 to 3 per cent, but inflation now seems to be entrenched (6), so, there may be more interest rate increases ahead to slow the economy further. 

Inflation is a worry for mortgage holders because if it keeps increasing there may be more rises in interest rates which would make mortgage repayments higher. According to the RBA, the cash rate target is 3.10 per cent.  

Global Markets

The International Monetary Fund (IMF) said that it expects global growth will slow from 3.4 per cent in 2022 to 2.9(7) per cent in 2023 compared to a forecast of 2.7(8) per cent in October. The better outlook reflects China’s economy reopening and an expectation of more activity. 

United States

The annual inflation rate for the United States is 6.5% for the twelve months to December 2022; the next inflation update will happen on February 14th. Inflation slowing in the US would be helpful for the rest of the world, but so far prices have only slowed down modestly.  

Therefore, we will keep monitoring this variable. Powell has stated that the Fed plans to bring inflation back down to the 2 per cent goal (9). Now, the federal funds rate is 4.25 (10) per cent to 4.50 (11) per cent as of December 14th, 2022. 

European Union 

The Euro’s area annual inflation was 9.2(12) per cent in December 2022 down from 10.1 per cent (13) in November 2022. Meanwhile, the European Central Bank (ECB) raised the eurozone interest rate by 0.5 per cent to 2.5 per cent (14) to slow inflation.  

Great Britain

The Consumer Price Index including owner occupiers’ housing costs (CPIH) rose by 9.2(15) per cent in the 12 months to December 2022, down from 9.3(16) per cent in November.  

Meanwhile, the Bank of England (BOE) raised interest rates to 3.5(17) per cent.  

 

Disclaimer: The information and any advice provided in this newsletter has been prepared without considering your objectives, financial situation or needs.  Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things. You should obtain the relevant appropriate document for any product mentioned and consider its contents before making any decision.   

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​​Bibliography

​​ABC News. (2023, January 29). Australia’s inflation problem is now entrenched and that means interest rates have to rise again. Retrieved from https://www.abc.net.au/news/2023-01-29/australia-inflation-problem-entrenched-interest-rates-rise-again/101897468.

​Bank of England. (n.d.). Interest rates and Bank Rate. Retrieved from https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate.

​CNN Business. (2023, January 31). Global economic outlook slightly less gloomy, Europe ekes out growth. Retrieved from https://edition.cnn.com/2023/01/30/economy/imf-world-economic-outlook-2023/index.html.

​Deutsche Welle. (2022, December 15). ECB raises eurozone interest rate by 0.5 per cent. Retrieved from https://www.dw.com/en/ecb-raises-eurozone-interest-rate-by-05/a-64107186.

​Eurostat. (2023, January 18). Inflation in the euro area. Retrieved from https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area.

​Office for National Statistics. (2023, January 18). Retrieved from https://www.ons.gov.uk/economy/inflationandpriceindices#:~:text=Consumer%20price%20inflation%2C%20UK%3A%20December%202022&text=The%20Consumer%20Prices%20Index%20including,down%20from%209.3%25%20in%20November.

​The Ascent. (2022, December 19). Federal Reserve Interest Rates and How They Affect You. Retrieved from https://www.fool.com/the-ascent/federal-reserve-interest-rates/

​The Guardian. (2023, January 31). To curb inflation, Australian governments should delay some of their own spending. Retrieved from https://www.theguardian.com/commentisfree/2023/jan/31/to-curb-inflation-australian-governments-should-delay-some-of-their-own-spending 

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