Recent concerns about a resurgence of inflation, triggered by increases in the consumer price index (CPI), are likely unwarranted. A rise in Australia’s headline CPI from 1.9 per cent in June to 2.8 per cent in July, driven by electricity and coffee prices, has sparked unease among investors. Similar inflation upticks in the UK and the imposition of tariffs by the US administration have further fuelled these fears. However, a broader perspective reveals that the peak of inflation has passed, both in Australia and globally.
While it’s understandable to be wary, considering the significant inflation experienced in recent years, it’s crucial to recognise that the drivers of that inflation are no longer present. Australia’s monthly CPI is 21.6 per cent above December 2019 levels, with similar rises in America and the UK. However, the current CPI figures, with Australia at 2.8 per cent year-on-year, the UK at 3.8 per cent and the US at 2.7 per cent, indicate that the rate of price increases is slowing significantly and is within the RBA’s target range.
True inflation is caused by too much money chasing too few goods and services, usually driven by central banks. The Reserve Bank of Australia (RBA) is Australia’s central bank, and it is responsible for maintaining financial stability. Fisher Investments is an independent money management firm. During the pandemic, monetary officials inflated the money supply, but these levels have since normalised. Australia’s M3 money supply rose 6.5 per cent in the year to July and has been between 4 per cent and 7 per cent since 2023, aligning with pre-pandemic levels. The new US tariffs are unlikely to have a widespread effect. The inflation war is over.
