Business Environment Profiles - Australia
Published: 19 March 2025
Consumer price index
140 Index
3.9 %
This report analyses the value of the consumer price index (CPI). The CPI measures the price of a basket of goods consumed by the average Australian, and is the standard measure of the rate of inflation in Australia. Indexes are calculated for each of the capital cities and are then combined as a weighted average to obtain a nationwide value. This report uses the average quarterly value of the index over each financial year. The data for this report is sourced from the Australian Bureau of Statistics and is measured in points, with a base of 100.0 points in 2011-12.
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IBISWorld forecasts the CPI to average 140.3 index points in 2024-25, which represents a 2.5% rise over the previous year. Although the CPI is expected to rise in 2024-25, the growth rate is expected to be within the RBA's target band. The full effect of the RBA's decisions to raise the cash rate in an effort to manage rampant inflation—from May 2022 through to the latest hike in November 2023—has weighed on consumer spending and has had a flow-on impact on inflation, even with the latest rate cut in February 2025. As part of the 2024-25 Federal Budget, the Australian Government delivered subsidies like the electricity rebate to provide cost-of-living relief to Australians, placing downwards pressure on the CPI. According to the RBA's February 2025 monetary policy statement, multiple subcomponents and categories within the CPI have experienced greater disinflation than previously anticipated. Notably, new dwelling cost inflation, CPI rent inflation and services inflation have eased substantially in the quarter ending December 2024, contributing to the CPI declining more than expected. The central bank also expects the annual trimmed mean underlying inflation to reach the target band of 2-3% in early 2025 and underlying inflation to settle above 2.5% from late 2025, ahead of the timeline forecasted in the November 2024 statement. Factors like commodity prices, interest rates, and wage growth will influence the growth rate of the CPI over the coming quarters.
The RBA uses monetary policy tools in order to maintain the inflation rate in a desired target band of 2-3%. The RBA's tools for controlling inflation have a lagged effect and forecasting errors make it difficult to estimate future inflation, so fluctuations can occur. In the short-term, by using monetary policy to cut interest rates, the RBA can ignite demand for goods and services and drive economic growth, ultimately achieving a lower unemployment rate. The RBA seeks to average the target range for the inflation rate over the economic cycle. This allows for a higher inflation rate during part of the economic cycle to maintain full employment. Concerns around inflation exceeding the targeted range have led many central banks around the world to halt interest rate rises, with the RBA following suit. However, as inflationary pressures begin to ease, central banks have started cutting rates.
Real GDP and residential housing prices have lifted over the past five years, supporting growth in the CPI. Furthermore, the Federal Government's monetary and fiscal policies have allowed inflation to remain positive and supported CPI growth over the past five years, particularly during the pandemic. Public demand has been a key contributor to economic growth amid softened consumer spending. Overall, IBISWorld forecasts the CPI to increase at a compound annual rate of 3.9% over the five years through 2024-25.
IBISWorld forecasts the CPI to average 144.0 index points over 2025-26, increasing by 2.9% over t...
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