Stubbornly high inflation increases pressure on Reserve Bank

Monthly consumer price index figures from the Australian Bureau of Statistics show inflation spiked in November to be 7.3 per cent higher than a year earlier, equaling the peak reached in September and dashing hopes that an easing in price pressures in October signaled that the fight to tame inflation was gaining traction.

The reversal increases the likelihood that the Reserve Bank of Australia will lift the official cash rate, currently at 3.1 per cent, when it meets next month and raises the prospect of more rate increases during the year.

Retail turnover grew 1.4 per cent in November - the biggest monthly rise in 10 months - as Black Friday sales and department store specials lured customers into splurging on clothes, shoes, fashion accessories, household goods and electronics.

ABS head of retail statistics Ben Dorber said weaker turnover in October may have been caused by people holding off on spending in anticipation of Black Friday discounts.

Inflation pressures in November were not confined to retail. The end of fuel excise relief helped push transport costs up by 9 per cent, while high labour, material and operating costs drove housing, restaurant and take-away prices even higher. Meanwhile, a combination of strong demand and expensive jet fuel pushed the cost of holiday travel up almost 13 per cent - the second-highest increase since records began in September 2018.

The RBA will get more detail on strength of price pressures when inflation figures for December are released on January 25.

Monash University economics lecturer Zac Gross said if last month's result was similar to that in November then it was likely the Reserve Bank Board would lift the cash rate to 3.35 per cent at its February 7 meeting.

Dr Gross warned borrowers to expect further interest rate pain during the year.

"I would be surprised if there weren't at least two more hikes, getting us as high as 4 per cent or a little higher," he said.

Stubbornly high inflation underpins market expectations that the RBA board will raise the cash rate to close to 4 per cent this year as it tries wrestle price growth back within its 2 to 3 per cent target band.

But Market Economics director Stephen Koukoulas said "erratic" readings of household spending made it very difficult to accurately gauge what was happening in the economy.

Though ABS figures show retail sales grew strongly in November and separate data collected by the Australian Retailers Association and Westpac DataX indicate shoppers splurged more than $1.2 billion at the Boxing Day sales, transaction data from the ANZ Banking Group suggests spending through much of December was subdued.

Mr Koukoulas said the uncertain picture would be challenging for the RBA board next month as it tried to assess whether monetary policy needed to be tightened.

He predicted the central bank would hold its cash rate steady for much of this year as it assessed the effects of recent rate hikes.

The uncertain global environment is likely to weigh heavily on its deliberations.

In a gloomy assessment, the World Bank has slashed its global growth forecast for 2023 from 3 to 1.7 per cent and has warned that any new shock could tip the international economy into recession for the second time in the decade.

Treasurer Jim Chalmers said Australia would not be immune from the global slowdown.

"We should be optimistic about the future of our economy and our country but realistic about what the deteriorating international outlook means for us in Australia," Dr Chalmers said

One of the factors the RBA will closely monitor is the labour market.

The ABS has reported that the number of job vacancies eased 4.9 per cent lower in the three months to November, though at 444,200 they remain well above the pre-pandemic average of around 220,000.

Mr Koukoulas said the figures showed the labour market was softening.

"Job vacancies have declined 7.5 per cent in the last six months. Clearly the slowing economy is feeding into slower demand for workers, which is feeding into lower job vacancies," Mr Koukoulas said, predicting the unemployment rate (currently at 3.5 per cent) will edge close to 4 per cent or even higher during this year.

"The [Reserve Bank] will be happy to see the unemployment rate go to 4 per cent but they would probably start to get a little nervous if it gets to 4.5 per cent," he said.

But Australian Industry Group director of research and economics Jeffrey Wilson said there was little sign of the labour market loosening and employers were struggling to find the workers they need.

"Three per cent of all jobs are currently unfilled and there are more than twice as many vacancies as there were pre-pandemic, Dr Wilson said.

He said many employers had given up on finding the staff they need and the effect was being felt throughout the economy in long delays in accessing services and obtaining goods.

And Dr Wilson warned that simply restoring immigration to pre-pandemic levels would cause labour shortages to persist for much of the decade.