Inflation tiger roars at bread and butter
Even at an upmarket inner Sydney cafe, people are talking about rising costs.
"It's very noticeable on Uber Eats," says Bobby Cheng, a 25-year-old coffee drinker at the Scandinavian-inspired Funkis Koket Cafe.
"I feel a bit worse every time I order."
Ragib Zaman, 30, says he recently used his phone to search for rentals in the Paddington area using a pre-set price filter, and for the first time his search came up empty.
"A month or two ago, I could always find something," he tells AAP.
From bread and butter, to lettuce and rental lettings, Australians are grappling with rising costs. The issue has become one of the major election talking points, and a growing problem for policy makers.
The increase in the price of goods and services could last through the end of next year, Reserve Bank of Australia officials said last week, after raising the cash rate for the first time in more than a decade.
Economists widely expect last week's increase to be the first of many after headline inflation came in at 5.1 per cent in the March quarter, well above the RBA's target range of two to three per cent.
Higher interest rates are the usual policy response to cool an economy and combat rising inflation. If not tamed, prices for goods and services can rocket.
Transport was the biggest source of inflation in the March quarter, rising 4.2 per cent from the December quarter as Russia's invasion of Ukraine and increased demand from easing COVID 19 restrictions pushed fuel prices higher.
New house prices were also up amid ongoing labour and materials shortages, and grocery food prices rose four per cent.
Australians aren't the only ones grappling with rising costs.
Consumer prices in the 19 countries that use the Euro rose by an annualised 7.5 per cent in March, while in the USA they jumped by 8.5 per cent, representing a 40-year high.
AMP chief economist Shane Oliver says there were several contributing factors, including a change in spending habits during the pandemic lockdowns.
"You had this massive demand for goods, but the problem was that people who make goods were disrupted in their production process," Mr Oliver says.
"Initially, I think companies ran down their inventories, but then inventories ran out."
Companies have tried to restock, but the war in Ukraine has disrupted the supplies of commodities like oil, metals and grains. Meanwhile, tight labour markets have put upward pressure on wages, and surging gas prices have impacted shipping costs.
The stimulus programs designed to spur economic activity during the pandemic have also contributed to rising prices.
"By the same token, if we didn't have those things we would have had a bigger and longer recession, so I don't think it would be right to criticise governments for that," he says.
Mr Oliver says it's good that the RBA is trying to tackle inflation before it becomes entrenched.
He says in the 1960s and 1970s, inflation lasted so long that people started accepting that constant price hikes were just a fact of life.
"When that occurs, it's a lot harder to control it."
From an investing standpoint, companies that have full control of their costs but also strong pricing power because of high demand stand to benefit from inflation, Oliver says, citing commodity producers and building materials companies as examples.
