The official measure of consumer price increases has surged, with steep rises in the cost of fuel and new homes driving the increase.
The Australian Bureau of Statistics consumer price index (CPI) jumped 1.3 per cent over the last three months of 2021 to be 3.5 per cent higher over the year.
A 4.2 per cent jump in the cost of new dwellings and 6.6 per cent surge in fuel prices were the main contributors to the bigger-than-expected increase.
Again, much of the increase in prices was driven by a clash between strong demand and COVID-disrupted supply chains.
"Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses and apartments," noted the ABS head of price statistics Michelle Marquardt.
It is a phenomenon that Carlos Toma is experiencing first hand.
The Melbourne-based tradie does restumping and underpinning on homes, and said the price of all his major materials had surged.
"They've gone up [through] the roof, you know, 30 per cent on everything, timber, concrete, pumps, everything that you can think of," he told ABC News.
He said that while some supply shortages appeared to be starting to ease, he was not confident that would result in lower costs.
"According to the big suppliers, they reckon they're going to drop the prices, which I can't see it happening," he said.
Mr Toma said he, like most building contractors, originally was wearing the cost of price increases, but now it was being passed on to the consumer.
"Ninety per cent of the time we've signed the contract so we know it's subject to variation, but we never put it into account that everything's gonna go up by 30 per cent," he said.
"So sometimes we're coping it, we're taking it on the chin.
Fuel price surge rippling through the economy
While new home construction is a large part of the CPI because of the amount of money spent on the projects, it affects most people relatively rarely, if at all.
The same cannot be said for fuel prices, which jumped 6.6 per cent in the December quarter and by nearly a third over the past year.
Not only do higher fuel prices affect households directly at the petrol pump, but they also push up the cost of many other goods and services that rely on transport.
Gerry Gerrard is the chief executive of flower delivery booking service Interflora.
"The cost of fuel is obviously a significant component of the delivery, so we've had to make sure that our delivery price reflects that to allow our florists to keep their margin," he told ABC News.
"That means that in March, after Valentine's Day, we will be increasing our delivery fee.
Judy Ann Thomas is one of those florists and, aside from higher fuel costs, she said her wage bill had also gone up.
"If you want to keep good staff, you've got to pay them well," she said.
"My girls are a fantastic team. So I would like to think that I look after them that way."
Fastest goods inflation since 2008
Michelle Marquardt said, overall, the annual increase in the cost of goods was the highest since 2008, with the price increases outpacing those of services.
"Fuel prices were the largest contributor to higher goods inflation," she explained.
"More broadly, global supply chain disruptions and material shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods including dwelling construction materials, motor vehicles, furniture and audio-visual equipment."
ABS data also showed that price increases tended to be higher for essential goods and services rather than so-called discretionary purchases, continuing long-standing trends.
Rate rises 'may prove futile' against imported inflation
While the headline inflation reading of 3.5 per cent is well above the Reserve Bank's 2-3 per cent target, its preferred measures are not.
However, those preferred trimmed mean and weighted median measures, which exclude the most volatile price rises like fuel, are now at 2.6 and 2.7 per cent respectively.
That is the highest level since 2014 and above the mid-point of the RBA's target.
They are also already well above the Reserve Bank's current forecasts for where inflation would be two years from now.
The RBA board meets next week and the bank will also release updated forecasts.
Most economists now expect it to end its bond-buying quantitative easing stimulus next month, with many tipping a rate rise later this year.
However, Indeed's Asia-Pacific economist Callam Pickering said the bank was unlikely to rush into raising interest rates.
"At first glance, the combination of high inflation and low unemployment suggests that a rate hike should be imminent," he noted.
"The global pandemic obviously complicates matters, with high inflation largely a product of global supply chain issues.
"Raising rates in the current environment may prove futile for that very reason."
Mr Pickering pointed out that, until wage rises pick up to at least match rising prices, a rate rise would just be a double-whammy to consumers struggling with the cost of living.
"In the near-term, high inflation indicates that real wages will decline," he explained.
"While wage growth is set to rise, it will take some time for that to occur.
"So in the meantime, households will struggle under the weight of higher prices on a range of goods and services."
Business 'warning lights coming on'
The good news for workers is that businesses are already reporting higher wages growth.
National Australia Bank's monthly business survey for December showed labour costs rose 1.9 per cent in a quarter.
However, other costs rose even faster, with purchase costs up 2.8 per cent, the highest level since 2008.
Businesses passed through many of these costs to consumers, with final product prices up 1.5 per cent and retail prices rising 2 per cent over the quarter.
"Purchase costs have lifted to near-record highs, and that pressure is flowing through to strength in output prices," NAB's chief economist, Alan Oster, said.
The rise in costs and worries about falling demand due to the Omicron wave of COVID-19 saw business confidence dive in December, from +12 to -12.
"The confidence index fell below the level recorded at the beginning of the Delta outbreak, showing just how concerned businesses are about the current virus wave," Mr Oster added.
NAB's survey showed actual business conditions were much more resilient, only falling from +11 to +8 points.
"That suggests that while the economy was still going OK in December, it was clearly slowing and the warning lights were coming on," he said.
