Major bank says inflationary pressures are on the rise

Westpac economists matched NAB’s previous forecast, putting core inflation at 1.2% for the March quarter and 3.4% for the year.

If Westpac’s forecast comes true, the quarterly rise in core inflation will be the largest since the 2008 mining boom, a direct result of widespread price pressures. Meanwhile, the six-month annualized rate of core inflation is expected to accelerate from 3.5% to 4.4%.

In its latest bulletin, the big four banks said inflationary pressures continued to build due to ongoing supply disruptions, rising commodity and energy prices and weaker domestic demand. robust.

As such, Westpac expects the March quarter CPI to rise 2%, bringing the annual pace to 4.9%.

Housing costs are expected to make the largest contribution of 0.67 percentage points (ppt) thanks to a quarterly increase of 2.9% in the three months to March.

Transport comes next with a contribution of 0.38 ppt from automobile fuel and 0.06 ppt from motor vehicles due to the war in Ukraine. Westpac noted that the recent temporary fuel excise halving was only implemented on April 1, meaning it will not impact the CPI until the June quarter.

Food is not far behind with a 0.35 percentage point contribution as supply and distributions continue to pile on complexities alongside a significant shortage of casual labor.

Broken down by category, Westpac forecasts a 1.7% rise in bread and grain products, a 6.6% rise in fruit and vegetable prices, a 1.7% rise in meat and seafood prices, sea ​​and a 5.6% increase in the price of dairy products. .

Rents are also expected to see a quarterly increase of 0.7% nationwide, with Sydney and Melbourne leading the pack. The big four banks explained that the steady growth in market rents had followed government support related to COVID-19 and subsidies to tenants.

Similarly, Westpac forecast a 5.4% increase in home purchase prices, noting that prices are catching up after a lull brought about by HomeBuilder and other state housing subsidies.

According to the bank, the subsidies have kept the effective price of homes 3% below the list price, with the gap expected to close in the March quarter.

Looking ahead, Westpac expects the annual pace of core inflation to peak at around 4% in the second half of 2022, the fastest annual pace since the start of 2009.

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Major bank says inflationary pressures are on the rise



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Last update: April 22, 2022

Posted: April 23, 2022