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Inflation for the December 2023 quarter

Mixed blessings on lower inflation

02 February 2024

Australian inflation stepped down to 4.1% in the December 2023 quarter year on year. Our calculation of retail price inflation is at 1.9% for the quarter dropping back from 3.4% in the September quarter. The drop in inflation is negative for the revenue outlook in retail, particularly given retail volumes (including supermarkets) are also declining. However, the more rapid drop in broader inflation may help bring forward interest rate cuts and ease wage pressures a little in FY25e.

Inflation for the September 2023 quarter

Retail inflation easing back

27 October 2023

Australian inflation rose 5.4% in the September 2023 quarter, with our calculation for retail price inflation at 3.4%. Retail inflation has slowed significantly in some categories, particularly food, furniture, auto parts and sporting goods. The lower inflation reflects lower input costs flowing through and may be supportive of gross margins against a backdrop of rising operating costs such as wages and rent. Even so, it is likely that inflation fades further and is another headwind for nominal sales growth near-term given volumes are also sluggish.

Inflation for the June 2023 quarter

Retail inflation fade looks to be gradual

27 July 2023

Australian inflation rose 6.0% in the June 2023 quarter and we calculate retail price inflation was 5.2%. Retail inflation is easing off, but still well above long-term trends. Packaged grocery inflation is double digits and the only discernible drop in retail inflation is in large/small appliances and footwear. Input and freight costs are falling for a range of retail goods and retail inflation will be much lower in 2024 with lower input costs a margin cushion for many retailers to help deal with weaker demand and higher wage costs.

Inflation for the March 2023 quarter

Past the peak in retail as well

26 April 2023

Australian inflation of 7.0% in March 2023 quarter suggests price rises peaked in December 2022. We think the same is true of retail prices. Inflation has dropped meaningfully in appliances and furniture prices are starting to fall.  Food inflation has also peaked albeit this is more a function of fresh categories which now have very low inflation such as vegetables and red meat. The unwind of elevated inflation will see retail sales slow. The drop is more noticeable in household goods with a more significant slowdown likely in other non-food categories later in calendar 2023.

Inflation for the December 2022 quarter

Have retail price rises peaked?

31 January 2023

Australian inflation for the December 2022 quarter was 7.8%. Retail categories have had similar price increases, propping up retail sales growth. Retail volumes are already flat to declining based on our analysis. Packaged grocery inflation accelerated further to 7.0%. We expect the rate of retail inflation has peaked and volumes will start to decline at a faster rate this year.  This is more likely the risk in supermarkets, furniture, appliances and auto parts. Nonetheless, overall nominal retail sales growth will continue to be underpinned by price inflation over the next six months.

Inflation for the September 2022 quarter

Price rises move beyond the sweet spot

26 October 2022

Australian inflation for the September 2022 quarter was 7.3% with retail categories making a meaningful contribution to the price growth. Packaged grocery inflation was at its highest in more than 30 years. Retail inflation is starting to move above the sweet spot in our view. The magnitude of inflation will start negatively impacting volumes. This is more likely the risk in supermarkets, furniture and auto parts. Nevertheless, overall retail sales will continue to be propped up by price inflation over the next 12 months.

Inflation for the June 2022 quarter

Price rises evident and more to come

27 July 2022

Australian inflation for the June 2022 quarter was 6.1% and retail inflation was 5%. Packaged grocery inflation was at its highest in more than 30 years and electronics, a category that is typically deflationary, showed inflation of 4%. The good news for retailers is that the inflation remains within a sweet spot with nominal sales growth supported by price rises and a very limited volume response. Expect more retail price inflation over the next six months.

Inflation for the March 2022 quarter

Price Rise to Cushion Volume Drop

27 April 2022

Australian inflation has accelerated significantly with retail inflation accelerating by 120bp over the past three months. The most notable step-up in prices is in supermarkets, electronics and sporting goods. The categories that are lagging are liquor, clothing and footwear. We expect inflation to rise further in calendar 2022 given the input cost pressures that are working their way through the value-chain. The question is whether inflation is within a sweet spot, providing a boost to revenue greater than the volume decline. At current levels, we think inflation is a net positive as the rate of inflation is only slightly ahead of wage growth.

Inflation for the December 2021 quarter

Retail prices starting to rise

25 January 2022

Retail price inflation accelerated in the December 2021 quarter, albeit the increase was not uniform across all categories. Red meat, health & beauty, hardware, furniture and auto parts all had high inflation, while fruit, appliances and clothing prices all fell year on year. Supermarket inflation only accelerated by 30bp in the quarter. We expect more noticeable price rises in categories like supermarkets, sporting goods and electronics in the first-half of calendar 2022.

Inflation for the September 2021 quarter

Pricing still elevated compared with pre COVID-19 levels

27 October 2021

On the surface, Australian retail price inflation for the September 2021 quarter eased back. However, significant volatility in pricing in 2020 can make it misleading. Over the past two years, pricing is elevated in electronics, hardware and furniture and slightly above average in grocery. Prices are lower in clothing and footwear. The increase in input costs is likely to lead to higher price inflation over the next six months in our view.

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