Consumers see inflation breaching RBA target slightly

The proportion of people who expect inflation to breach the Reserve Bank’s annual target of 2-3% increased slightly in June, a survey of 1200 consumers has found.

The survey, conducted by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne, found that the overall median expected inflation rate remained unchanged at 3.3% in June – just outside the upper range of the RBA’s annual target of 2-3%.

The proportion of respondents who expect inflation to stay within the RBA’s target fell to 15.7% in June, down from 16.1% in May.

“This month’s survey results suggest that consumers’ view on future inflation might be shifting,” said Dr. Michael Chua, a Research Fellow at the Melbourne Institute.

“The next few readings of economic data will be crucial in shaping consumer expectations.”

Dr Chua said the cyclones and floods that plagued Australia earlier in the year could be contributing to expectations that prices will rise.

“For the past month, what we have seen is a downward trend. This trend is probably mainly due to the natural disasters happening in Queensland. Things are slowing down,” he said.

“The disaster effects are now starting to go away, so now we need to see if underlying inflation will pick up.”

Queenslanders were the most worried about inflation, registering a median inflation expectation of 4.4%, compared to 4.3% in NSW and just 2% in South Australia.

“There’s a lot of uncertainty around. Consumer sentiment has fallen and there’s news about the labour market not doing well. That’s creating uncertainty among respondents,” said Dr Chua.

Some sectors are more worried than others about potential price rises. The median expected inflation rate of clerks and salespeople was as high as 4.8%, while for managers and professionals, it sat at 4%.