As both a fruiter and builder, Anthony Todarello can reel off more goods that have soared in price in the past year than most people.
His family has run the Hampton Fruit Centre, an institution in Melbourne’s Bayside suburb, for six decades. Todarello blames wild weather for pushing up the cost of produce at a pace rarely seen before.
“Everything’s late in being planted, with the rain [in eastern Australia] just wiping out crops, pretty much,” he said. “There is a real scarcity of supply, irrespective of the scarcity of labour.”
While cucumbers, tomatoes, and capsicums are among produce posting big increases, it’s the $20-a-kg green beans that stands out for him.
“We’ve never sold beans that expensive,” Todarello said. “By the time we buy, transport them here and [add the cost of] the labour, the cost is probably $17 a kilo, so there’s not much margin really at all. It’s pretty hard at the moment for everyone.”
Food prices will feature prominently when the Australian Bureau of Statistics releases the March quarter consumer price inflation figures on Wednesday. The so-called headline rate is set to come in at about 4.5%, not far shy of the 5% pace last reached in 2008.
The Commonwealth bank predicts food prices alone will have nearly doubled the pace of increases in the first three months of 2022 from the December quarter rising 1.3%. Petrol prices, which spiked with Russia’s invasion of Ukraine, rose almost 10% in the quarter and remain elevated, even with the 22.1 cents a litre temporary cut in the fuel excise.
Another consequence of rising prices is that the Reserve Bank is running out of excuses not to lift the official cash rate target from its record low 0.1% level.
Other central banks, such as in New Zealand, the UK and the US, have already acted, and Australia’s first increase in more than a decade won’t be far off unless the CPI comes in surprisingly low. Markets have been raising the odds of a 3 May rise, although bank economists are, for now, mostly tipping the first move will be in June.
While supplying food is “an essential service” for Todarello, he’s “put everything on hold for a while” in his construction business as the cost of supplies in that industry have also taken off. Timber is in short supply while steel from Steelcon, a long-term provider, has roughly doubled in the past year.
“It was about $1,300 and something [a tonne] and it’s now … $2,600,” he said. “And they can’t commit to that price.”
The squeeze is particularly hurting builders of large numbers of houses, with some opting to put in clauses to break contracts rather than wear ballooning losses.
“A townhouse project, which may have cost – for the sake of the argument – $1.5m for two townhouses [is] probably going to cost you close to $2m now,” Todarello said.
Banks, meanwhile, are already pushing up fixed-rate loans in expectation of their own higher costs of borrowing.
“Twelve months ago, no one would have predicted fixed rates would soar this high this fast, particularly when the RBA was predicting the cash rate would not move north until at least 2024,” Sally Tindall, the research director of RateCity.com.au, said.
NAB, for instance, has hiked some fixed rates almost 3 percentage points in the last year. Its four-year mortgage rate has gone from 1.98% to 4.49%, the data group said.
Household power bills will also be increasing as rising coal and gas costs for generators lift wholesale tariffs.
Katrina Ell, a senior economist at Moody’s Analytics, is among the more dovish analysts, predicting the March CPI will come at an annual rate of 4.1% for the quarter. The underlying rate, which strips out volatile items and is what the RBA most acutely watches, will be 3.1%, she said.
Ell notes that while the RBA has said it wants to see wages rise more before lifting rates, its officials have also been stressing the wage price index – next due out on 18 May for the March quarter – doesn’t pick up all of the increase. One reason is that more people are switching jobs, garnering higher pay in the process, she said.
Pandemic-related shortages have also added to price pressures, including from the latest lockdowns in China, where the government continues to pursue a zero Covid policy. The most recent closures, such as in Shanghai and now Beijing, will elevate prices this quarter and later, with increases hinging on how much production and transport are affected.
The effects for Australia include not just falling prices for iron ore and other commodities, but also a delay in the recovery of the country’s service sector.
“We’re not expecting to see a strong resurgence in, say, arrivals from China,” Ell said, removing some of the biggest spenders. “It was expected that this year, particularly in the first half, that we would see that kind of besieged service sector really starting to pick up.”
Some short-term relief will land as the Morrison government’s $250 cost of living payments start going out from Wednesday, handily coinciding politically with the CPI release. By the end of the week, 6 million eligible Australian pensioners, welfare recipients, veterans and concession card holders will receive $1.5bn in total.
Todarello, though, predicts fruit and vegetable prices will remain high for months to come because above-average rains in growing areas don’t appear to be over. Ell, too, points to the likelihood of higher fuel prices once the six-month excise cut ends.
“There’s a lot of pressure that’s going to come on to the household sector over the next year,” Ell said.