Cost of renting continues to climb even as inflation slows

Cameron Kusher
Cameron Kusher

Despite signs of slowing inflation, there's no such relief for tenants as official data shows rents grew at the fastest pace in 25 years during the June quarter.

Unfortunately for renters, it is expected that costs will continue to climb with stock levels and vacancy rates historically low, demand well above pre-pandemic levels and properties leasing quickly.

Data from the Australian Bureau of Statistics showed the Consumer Price Index continued to ease in Australia over the June quarter.

Headline CPI rose 0.8% during the quarter, which saw the annual rate of inflation slow from 7% in March to 6% in June.

The Reserve Bank of Australia's preferred measure of underlying inflation, which reduces the impact of irregular or temporary price changes, was even softer at 5.9% over the year. This was down from an annual rate of 6.6% the previous quarter.

That has given the RBA some breathing room, with the central bank holding the official cash rate at 4.1% in August for a second straight month. Many economists anticipate we may have already reached the interest rate peak.

Despite moderating, inflation remains too high given the RBA seeks to keep inflation between 2% and 3%.  However the data is showing a slowing of inflation.

ABS data shows rents recorded the strongest quarterly rise since 1988 in June, reflecting low vacancy rates amid a tight rental market. Picture: NCA NewsWire / Jeremy Piper

The deceleration of inflationary pressures is not unique to Australia, as it is being replicated in many major economies globally.  

Looking at some of the major economies around the world, the rate of annual inflation is now slowing. Across the US, Europe, UK and Canada, inflation is lower than it was a year ago.

Although the rate of inflation is slowing, inflation is still increasing. As such, costs are continuing to rise, they are just doing so at a slower pace.

The international experience is that goods inflation is slowing, while services inflation is proving more resilient. This is also true for Australia. Even so, quarterly growth in services inflation has slowed over each of the past two quarters and just recorded its smallest quarterly increase since June 2022.

Inflation data in Australia is split into 11 sub-groups, of which housing has the greatest weight (22.24%).

After that, it is split into numerous smaller expenditure classes, with two housing expenditure classes - new dwelling purchase by owner-occupiers (8.62%) and rents (5.75%) which hold the largest weightings of any expenditure classes.

The housing sub-group recorded a slowing of annual inflation to 8.1%, well above headline inflation. However, this fell from 9.8% the previous quarter, posting its smallest annual increase since March 2022. 

While housing inflation is slowing, the rental expenditure class recorded inflation of 2.5% over the June 2023 quarter, and 6.7% over the 12 months to June 2023.

The quarterly increase in inflation was the largest since September 1998, and the annual increase was the largest since June 2009.

Throughout the pandemic, advertised rents surged. Now, CPI rents, which encompass all rents, not just new ones like advertised rents, are catching up, with the strongest increases in many years.

With limited supply and historically low vacancy rates, there's no relief in sight for renters. Demand remains well above pre-pandemic levels and properties are continuing to lease quickly.

Although overall inflationary pressures are easing, it seems that renters are likely to face further price escalations for some time yet.

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