Urbis Think Tank
Perth inflation rate returning to national average
Last week I visited our Perth office and was asked what the effect of high cost of living increases would be on interest rates? My response was that inflation is currently benign in Australia, and is well within the Reserve Bank target range, which means that interest rates are on hold for now.
My Perth colleagues challenged me on this, claiming that the cost of goods in Perth was rising steeply. So, I’ve looked into it further and the answers are interesting. It turns out that both statements are true.
This chart shows that since early 2009, Perth has had the same benign inflation as the rest of Australia. Yes, inflation in Perth was a little higher than average in early 2010, but at just over 3%, it wouldn’t be classed as high.
But if we go back to 2005, that’s where the real differences lie. From 2005 to 2007, Perth inflation was well above the national average. Then in 2008, the rest of the country caught up and inflation was high everywhere, which led to the Reserve Bank needing to raise rates until the GFC hit.
So, what does this mean for Perth? It does seem that cost of living pressures in Perth will continue to be a little higher than the rest of the country. With the Perth inflation rate now back to the national average, this suggests that there is less of a two-speed economy at the moment, but we will have to wait and see if the market in the West heats up again like the 2005-07 period.
Written by Mark Solonsch
Senior Research Manager
