In February Australians expected inflation of 3.7% annually over the next two years, up 0.1% points on January, and the highest since February and March 2020 (4.0% for both). Inflation Expectations are now 1% point below their long-term average of 4.7%.
Inflation Expectations have now increased by 0.5% points in the last six months, the fastest increase for the index since late 2016/early 2017 when the index increased by 0.6% points in only two months.
The continued increases in Inflation Expectations bode well for a strong GDP result for the March quarter 2021. Australia has just notched up two consecutive quarters of growth above 3% of GDP during the September (+3.4%) and December quarters (+3.1%) of 2020 – the first time this has ever happened.
Inflation Expectations are higher in Country Regions of Australia (4%) than in the Capital Cities (3.5%) and this is borne out in each mainland State. The largest gap of 1% point is within South Australia with Inflation Expectations of 4.4% in Country SA (the highest figure for any area) compared to only 3.4% in Adelaide.
The next largest gap of 0.8% points is within Western Australia with Inflation Expectations of 4% in Country WA compared to only 3.2% in Perth – the lowest figure for any Capital City.
In both Victoria and Queensland there is a gap of 0.6% points between Country Regions and the respective Capital Cities. Inflation Expectations are 4.2% in Country Victoria compared to 3.6% in Melbourne and 3.9% in Country Queensland compared to only 3.3% in Brisbane.
The smallest gap of only 0.3% points between the two areas is in NSW. Country NSW has Inflation Expectations of 4% compared to 3.7% in Sydney and in-line with the national average.
Inflation Expectations by Capital Cities & Country Regions: February 2021
Source: Roy Morgan Single Source: February 2021, n=6,034. Base: Australians aged 14+.
Inflation Expectations now highest in Tasmania and NSW, lowest in Western Australia
On a State-based level Inflation Expectations are now highest in Tasmania at 3.8%, an increase of 0.4% points since the low-point of August 2020 and level with NSW also on 3.8%, up 0.5% points.
Inflation Expectations in Victoria are in-line with the national figure at 3.7%, up 0.5% points since August 2020. Just below the national figure are both Queensland 3.6% (up 0.2% points) and South Australia 3.6% (up 0.4% points).
Similarly to its Capital City Perth it is Western Australia which has the lowest Inflation Expectations of any State in February at only 3.4%, despite the largest increase by 0.7% points since August 2020.
As well as increasing Inflation Expectations the ANZ-Roy Morgan Consumer Confidence Rating has continued to recover and was at 110.6 for the month of February 2021, an increase of 21.5pts (+24.1%) since August 2020.
Consumer Confidence for February was the highest monthly figure for the rating since the month of November 2019 (111.2) more than a year ago.
Inflation Expectations Index long-term trend – Expected Annual Inflation in next 2 years
Source: Roy Morgan Single Source: Interviews an average of 4,500 Australians aged 14+ per month (April 2010 – Feb. 2021).
See below for a comprehensive list of RBA interest rate changes during the time-period charted above.
Roy Morgan CEO Michele Levine says Inflation Expectations have increased again in February and are now up in four out of the last six months by a total of 0.5% points to 3.7%: