Today’s inflation news is much more important than last night’s federal budget

So last night was federal budget night, Jim Chalmers’ first as Treasurer and the first for the Albanese government.

Here are my key take-aways:

  • Australians don’t care how much debt the Government is in.
  • Real wages will not start to grow until 2024, when unemployment is tipped to have increased by 1% to 4.5%.
  • Electricity prices are about to soar with an estimated 6% increase in power prices over the next 18 months.

The much bigger and more impactful news was announced this morning at 11.30am, when the September quarter inflation number was revealed.

The consumer price index (CPI) rose 1.8% during the September quarter, and 7.3% annually, according to the latest data from the Australian Bureau of Statistics.

The annual lift in inflation was the highest since 1990, following strong rises over the past four quarters on the back of higher prices for new dwelling construction, automotive fuel, and food.

It’s important to note that this figure has been impacted (kept lower) by the former Morrison government’s temporary cut to fuel excise, which has now returned to its full 44 cents per litre. This will come into play in the December quarter and will likely result in significantly higher inflation figures in that quarter.

What does it mean for you? In my opinion the RBA will lift rates by 0.25% in both November and December to try to maintain downwards pressure on inflation. Add to that the impact of the current flood emergency along the east coast and the inflation figures are likely to get much worse before they get better.

In other words: mortgage holders will pay more, property investors will hold property rather than selling, and buyers will continue to struggle to get the leverage they enjoyed pre May 2022.