Australia’s February Inflation Comes in Lower Than Expected

SYDNEY—Australia’s monthly inflation indicator came in below expectations in February, signalling that price pressures would likely continue to retreat over coming months.

The monthly consumer-price index indicator rose 3.4% in the 12 months to February, according to the latest data from the Australian Bureau of Statistics. Economists had expected a rise in February of 3.5% on year.

Some economists had expected the monthly CPI update to show a bigger rise, fuelled by services inflation which remains an area of concern for the Reserve Bank of Australia.

The better-than-expected inflation outcome will also help offset some of the uncertainty about the outlook for interest rates that arose in financial markets following news last week of a sharp drop in unemployment in February.

The most significant contributors to the February annual increase were housing costs, which climbed 4.6% on year, while food and nonalcoholic beverages rose 3.6% in the same period.

Alcohol and tobacco prices were up 6.1% and insurance and financial services rose 8.4%, the ABS said Wednesday.

Excluding volatile items from the data, the annual CPI rise in February was 3.9%, down from 4.1% in January.

Annual inflation excluding volatile items has continued to slow over the last 14 months from a high of 7.2% in December 2022, the ABS said.

Rents increased 7.6% for the year to February, up from 7.4% in January, reflecting a tight rental market and low vacancy rates across the country.

New dwelling prices rose 4.9% over the year with builders passing through higher costs for labor and materials. Annual new dwelling price increases have been around the 5% mark the past six months, the data showed.

The 3.6% rise in food prices in the 12 months to February was down from the 4.4% in January. It was the lowest annual growth since January 2022.

Insurance costs jumped 16.5% over the past 12 months to February, with rises in premiums across all insurance types due to higher reinsurance, natural disaster and claim costs, the ABS said.

Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

Australia’s February Inflation Comes in Lower Than Expected

The monthly consumer-price index indicator rose 3.4% in the 12 months to February

New research suggests spending 40 percent of household income on loan repayments is the new normal