Inflation, or the rising cost of living, remains a significant concern for households and the government. The Bureau of Statistics will release its February Monthly Consumer Price Index Indicator, which measures inflation and includes statistics on household expenditure categories.
The indicator is expected to exceed January's result of 3.4% annual inflation. The most notable price increases in January were in Housing (4.6%), Food and non-alcoholic beverages (4.4%), Alcohol and tobacco (6.7%), and Insurance and financial services (8.2%).
Economists predict today's CPI to rise to 3.6%, primarily due to the inclusion of more services in the ABS basket of items. Concerns have been raised about price effects in sectors such as health and education.
Several factors are likely to contribute to the February result, including the annual update of the education basket (0.2% increase) and rising petrol prices (0.2% increase).
The Reserve Bank considers various data points and economic indicators when making monetary policy decisions. Its primary goal is to achieve an annual headline inflation rate between 2 and 3%. While Australia's inflation target is based on CPI inflation, it is also useful to consider indicators of underlying or core inflation, which exclude volatile items like food and energy.
Despite the elevated headline inflation, the core CPI is expected to remain around 3.5% when the full March quarter data is released. This suggests that inflation remains high even after excluding items that have remained pricey.
The Reserve Bank has indicated that it may keep interest rates on hold for an extended period if headline inflation fails to return to its target band. Treasurer Jim Chalmers acknowledges the challenge of reducing inflation to under 3% but remains optimistic about the overall trend.
Economists believe that a spike in today's monthly CPI should be viewed as normal volatility and that the downtrend in inflation is likely to continue. They also argue against further interest rate hikes, citing the need to preserve jobs.
The Reserve Bank has emphasized the importance of keeping unemployment low while reducing inflation. However, it has not specified a specific unemployment rate that would trigger interest rate cuts. The bank's goal is to achieve a slight rise in unemployment while maintaining employment growth.
Despite these efforts, headline inflation must fall to between 2 and 3% by the end of next year, which remains uncertain.