What has economists concerned?

The Australian Bureau of Statistics released its latest print for the Consumer Price Index (CPI) and economists are concerned that the inflation genie may have escaped from the bottle.

The headline CPI result was 3.5% over the 12 months to December 2021, while underlying inflation (trimmed mean) jumped to 2.6% over the year – well above the RBA’s Statement on Monetary Policy (November) forecast of 2.25%. Market economists now expect the RBA will start tightening monetary policy by May / June 2022.

Investors / managers are starting to consider the implication of a higher inflation environment in commercial lease negotiations. Typically most commercial leases in Australia have fixed increases between 3% and 4%. We expect that some investors / managers will try and negotiate a fixed escalation or CPI, whichever is the greatest, clause.

The broadening of inflation pressures will likely keep headline and underlying CPI elevated over 2022 and 2023. However, we remain subscribers to the view that deflationary technology and demographic trends will continue to influence inflation over the long-term.