Twelve dollars for an iceberg lettuce. Eleven dollars for a punnet of strawberries. Cooking oil prices boiling over. KFC putting cabbage in its burgers. After decades of stable food prices, suddenly inflation is on the front page of the paper.
Addressing price rises involves government working with industry to fix supply chain issues, reducing the backlog in visa processing for skilled migrants, and pressing the Fair Work Commission for a pay rise for minimum-wage workers and aged care workers. The independent Reserve Bank has also raised rates to contain the demand-side pressures. Both the Reserve Bank and Treasury are currently forecasting that inflation will be back inside the target band of 2 to 3 per cent by 2024.
But if we’re to address inflation, it’s vital to understand it. In most countries, inflation is reported monthly, providing a regular update on price pressures. Of the 20 largest economies that make up the G20, Australia is the only one that doesn’t produce monthly inflation estimates. Instead, Australia produces inflation figures every three months.
When monitoring prices is like watching grass grow, it doesn’t much matter if you measure inflation every month or every quarter. But right now, it does. Getting a handle on price pressures helps companies know what’s going on in the economy. It allows charities to know what’s happening to the most vulnerable. And it enables governments to act swiftly to address blockages that are driving up prices unnecessarily.
That’s why I’m really pleased that on 26 October, the Australian Bureau of Statistics (ABS) will start producing a new monthly consumer price index indicator. The series has been made possible by the increased digitalisation of the economy, and the ABS’s data-sharing partnerships with the private sector.
Once upon a time, the only way of measuring prices was for ABS staff to wander the supermarket aisles with a notepad. Today, many companies post their prices online, and scanner data provides real-time information on what people are paying. The ABS’s reputation for data integrity and confidentiality means that the agency is able to obtain reliable data at a much lower cost than it would take to conduct price surveys.
As an egalitarian, I’m particularly aware of the way that inflation is worsening inequality. Right now, demand for luxury holidays is sky-high. Yet many disadvantaged Australians are eating less fresh fruit and vegetables. Better understanding the inflation picture will help government craft the right policy response.
Addressing the cost of living challenge in Australia doesn’t have a single solution, but more regular inflation data can only help. While the monthly indicator will not have the same official status as the quarterly inflation estimate (which is the series that is used to index government payments and commercial contracts), it will help to inform the discussion about how prices are changing, and what we can do about it.
Importantly, the monthly indicator won’t just provide a headline figure, it will also show how prices are changing for selected products such as fuel and food.
As an economist, I want inflation to be low and stable. I’m firmly hoping that what we’re seeing now is a temporary spike, and that demand-side and supply-side measures can bring it back into the Reserve Bank’s target range of 2 to 3 per cent. Ideally, monitoring inflation should be as boring as watching grass grow. But in the world of the $12 lettuce, it’s valuable to know that we’ll soon be keeping tabs on prices every month.