The inflation rate has increased to 3.8% for the year to December, according to the latest data from the Australian Bureau of Statistics (ABS).
This is up from the 3.4% inflation rate recorded in November.
The news comes less than a week before the Reserve Bank of Australia’s next meeting for the cash rate.
Here’s what you need to know.
Inflation
Inflation is a measure of the change in the price of goods and services over time.
It is usually an annual rate. This means the latest figure tells us that prices have increased on average by 3.8% over the past year.
The ABS calculates the inflation rate by analysing prices across categories including food, clothes, alcohol and tobacco, housing, and transport.
Increase
The ABS said electricity and holiday travel were two of the main contributors to the increase.
There was a 21.5% increase in electricity costs. This was mainly due to power bill rebates in effect last year in some states that have since expired.
Domestic travel and accommodation rose by about 8% with Christmas and the summer holidays, while international travel rose by around 24%.
Your contribution ensures The Daily Aus can continue doing the work you love.
I want to give $10 monthly to help TDA keep doing the news.
Your details:
Trimmed mean
The trimmed mean is often seen as a more accurate picture of how inflation is tracking. This is because it excludes volatile prices, such as petrol, to better understand longer-term changes in prices.
The trimmed mean for December was 3.3%, up from the 3.2% in November.
The trimmed mean is partly what the Reserve Bank of Australia (RBA) looks at to determine the cash rate.
Its target range for the trimmed mean is 2-3%, meaning the latest data of 3.2% is too high.
RBA
The news of the latest inflation figure comes less than a week before the RBA next meets to decide the cash rate.
The cash rate is what the RBA charges banks for short-term loans.
Changes in the cash rate are usually referred to as changes to interest rates, because the cash rate affects interest rates across the economy, including home loans.
The RBA uses the cash rate as a tool to fight rising inflation. If it deems inflation too high, it can increase the cash rate to try to limit spending.
Economists have said this higher inflation rate could contribute to a decision to increase the cash rate next week.
The higher the interest rate, the more expensive it is to borrow money (meaning mortgages can become more expensive).
