Inflation Expectations increase to 4% in June, highest since March 2020 and up 0.8% points from record low of 3.2%

In June 2021 Australians expected inflation of 4% annually over the next two years, up 0.3% and the highest Inflation Expectations since the pandemic began. Inflation Expectations are now 0.8% higher than they were a year ago – the biggest year-over-year increase since the series began in 2010.

Inflation Expectations are still 0.7% points below their long-term average of 4.7% but are now 0.5% points higher than the 2020 monthly average of 3.5%.

A look at Inflation Expectations by socio-economic quintile shows a strong co-relation between the two. Australians in the highest ‘AB Quintile’ have the lowest Inflation Expectations at only 3.4% in June, representing an increase of 1.3% points on a year ago – a larger increase than any other socio-economic quintile.

Inflation Expectations are progressively higher for each subsequent socio-economic quintile including 3.7% (up 0.5% points) for the ‘C Quintile’, 3.9% (up 0.8% points) for the ‘D Quintile’, 4.4% (up 1.1% points) for the ‘E Quintile’ and are highest of all for the ‘FG Quintile’ at 4.8% (up 0.6% points).

The socio-economic quintiles* rank all respondents by considering their education level as well as the income and occupation of the respondent if they’re a full-time worker. See below for further details on how the socio-economic quintiles of the population are calculated.

Inflation Expectations by Socio-Economic Quintile: June 2020 cf. June 2021

Source: Roy Morgan Single Source: June 2020, n=5,767; June 2021, n=6,064. Base: Australians aged 14+.

Inflation Expectations are now highest in Tasmania and lowest in South Australia

On a State-based level Inflation Expectations are now highest in Tasmania at 4.3%, an increase of 0.6% points from May. In addition, Inflation Expectations are slightly higher than the national average in both NSW at 4.1% (up 0.3% points) and Queensland at 4.1% (up 0.3% points).

Inflation Expectations in Victoria are in line with the national average at 4.0% (up 0.4% points since May) and Western Australia at 4.0% (up 0.6% points) while South Australia now has the lowest Inflation Expectations at 3.7%, down by 0.3% points.

The ANZ-Roy Morgan Consumer Confidence Rating for June was at 111.4, an increase of 15.1pts (+15.7%) from June 2020 a year ago. Since then Consumer Confidence has been hit by the short lockdowns in Brisbane, Perth and Darwin and by the extended lockdown in Sydney and in the first week of July dropped to 107.8 – its lowest for three months since early April.

Inflation Expectations Index long-term trend – Expected Annual Inflation in next 2 years

Source: Roy Morgan Single Source: Interviewing an average of 4,500 Australians aged 14+ per month (April 2010 – June 2021). 

See below for a comprehensive list of RBA interest rate changes during the time-period charted above.

“Inflation Expectations increased by 0.3% points to 4% in June and are now up 0.8% points from a the low-point of June 2020 (3.2%) just as Victoria faced an increase in daily cases of COVID-19 that eventually led to the State being put into lockdown for nearly four months. 

“A year later there is a similar dynamic at play with a widening outbreak of COVID-19 in Sydney however there are several key differences this time around. The most important difference is that Sydney has already entered a lockdown in late June whereas the lockdown in Victoria did not occur until there were well over 100 cases per day within the community. 

“The second key difference is that the vaccine rollout has begun and although slower than many would have hoped over 9 million vaccine doses have been administered covering around a third of the population. In the key demographics over 70% of Australians aged 70+ have received a vaccine dose and over 55% of people aged 50+ have received a vaccine dose. 

“The increasing rate of vaccination in the most vulnerable populations suggest the current NSW outbreak should not cause the same level of harm and suffering as Victoria’s outbreak a year ago although the economic impact will continue to mount the longer the lockdown goes on. 

“Inflation Expectations are a key indicator of economic health and the large increase from a year ago shows the economy is on much firmer footing than during the middle of 2020. Over the year to March 2021 the ABS GDP figures show the economy grew by 1.1% compared to a year ago – one of the few OECD economies to grow during the first year of the pandemic. 

“On a more granular level the Inflation Expectations of Australians across the socio-economic spectrum have all increased strongly from a year ago – with the largest increase for those in the top ‘AB Quintile’ – up 1.3% points to 3.4%. 

“However, although the ‘AB Quintile’ has seen the biggest increase Inflation Expectations are progressively higher the lower down the socio-economic ladder one goes. Those in the lowest ‘FG Quintile’ expect prices to rise by an average of 4.8% per year over the next two years indicating that as the economy recovers there is a danger of pricing pressures hitting consumers. 

“One of the most sensitive prices most Australians keep an eye on is the price of petrol at the pump which has been rising quickly over recent months. The latest figures on petrol prices released by the NRMA show the average price of petrol around $1.60 a litre or higher in Sydney, Melbourne, Brisbane and Perth last week – and set to continue higher in the next few months if the Australian Dollar continues to fall. 

“Keeping an eye on the direction of Inflation Expectations allows policy-makers to understand how the underlying dynamics in the economy are impacting on consumers and whether concerns about the prices of goods and services are being felt by the average Australian.”