In January Australians expected inflation of 3.6% annually over the next two years, unchanged on December, but up 0.4% points on the record lows in June and August. However, Inflation Expectations are still 0.3% points below their level of a year ago in January 2020 (3.9%).
Inflation Expectations increased in the closing months of 2020 as Victoria got on top of its second wave of COVID-19 and internal boundaries were relaxed. However, a series of outbreaks of COVID-19 from hotel quarantine facilities in the last few months has tempered expectations of a quick return to normal.
Inflation Expectations at the start of 2021 are heavily correlated to age. Older Australians born before 1946 and known as ‘Pre-Boomers’ now have the highest Inflation Expectations at 3.8%, and with the biggest increase of 0.7% points since the mid-2020 record lows.
The Baby Boomers, born from 1946-1960 and now entering retirement in large numbers, have similarly high Inflation Expectations at 3.8%, but up a lesser 0.5% points since June 2020.
The bulk of the working age population aged 30-60 and comprised of Gen X (born 1961-1975) and Millennials (born 1976-1990) have Inflation Expectations clustered around the national average at 3.7% for Gen X and 3.6% for Millennials.
It is younger Australians aged under 30 in Gen Z who now have the lowest Inflation Expectations of any generation at only 3.3%, and up only 0.1% points since the low of June 2020.
Inflation Expectations by Generation June 2020 cf. January 2021
Source: Roy Morgan Single Source: Jun. 2020, n=5,767 and Jan. 2021, n=4,545. Base: Australians aged 14+.
Inflation Expectations now highest in Tasmania and lowest in South Australia
On a State-based level Inflation Expectations are now highest in Tasmania at 4.5% and have increased in each of the last two months. Despite the increases Inflation Expectations in Tasmania are 0.9% points lower than a year ago in January 2020 – the largest year-over-year decline of any State.
Also with higher than average Inflation Expectations are both Queensland at 3.8% and New South Wales at 3.7%. Inflation Expectations in both of these States increased slightly in January as the border between the two States remained heavily restricted as New South Wales battled to get on top of several outbreaks in the Greater Sydney area. The border re-opened fully at the start of February.
There were three States in which Inflation Expectations fell in January led by Western Australia, down 0.4% points to 3.6%, Victoria, down 0.1% points to 3.5%, and South Australia, down 0.6% points to 3.1%.
Victoria began the month dealing with a breakout of COVID-19 at a Melbourne restaurant while Western Australia had its first case of community transmission at the end of January prompting the State’s first lockdown for over eight months since April 2020.
The constantly changing situation led to significant border closures and re-openings throughout the month although the good news is Consumer Confidence peaked at 112.1 right at the end of the month on January 30/31, 2021 indicating Australians are becoming increasingly confident.
On a regional basis Inflation Expectations are higher in Country Areas and are now at 3.9% (up 0.1% points since December) compared to 3.5% (down 0.1% points) in Capital Cities.
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 – Jan. 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 are unchanged in January at 3.6% as Australia battled multiple outbreaks of COVID-19 and the associated lockdowns and border closures halted the upward momentum in the index: