RBA study shows labour costs, rents drive post-pandemic inflation surge
Australia’s household consumption deflator rose above the Reserve Bank’s 2–3% target for most of the period since COVID-19, with labour costs and dwelling rents the dominant domestic drivers, according to an RBA analysis released on Thursday.
Source: Reserve Bank of Australia · August 27, 2026 at 6:31 AM · AI-assisted report
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MALAYSIA, 27 AUGUST 2026 —
Australia’s household consumption deflator rose above the Reserve Bank’s 2–3% target for most of the period since COVID-19, with labour costs and dwelling rents the dominant domestic drivers, according to an RBA analysis released on Thursday.
Market Impact
The study decomposes growth in the consumption deflator—an implied price index that tracks what households pay for goods and services—into contributions from labour costs, business owner returns, dwelling rents, import prices and net taxes. Since the pandemic, all five components have lifted prices, but their importance has shifted over time.
Labour costs accounted for the largest share of the inflation pickup in 2021 and 2022, the RBA said, reflecting tight labour markets and wage pressures. Dwelling rents also contributed strongly, though their surge lagged behind new dwelling purchase prices in the CPI because the deflator uses imputed rents rather than transaction prices.
Import prices added to inflation in 2022 when global supply chains were stressed, while business owner returns—measured as gross operating surplus and gross mixed income—rose as capital costs and financing expenses increased. Net taxes added modestly to the overall increase.
The deflator rose less quickly than the CPI during the inflation surge because of differences in how housing is measured. Owner-occupier housing costs in the CPI—based on new dwelling purchases—accelerated faster than imputed rents in the deflator between late 2021 and early 2023, then fell more sharply from late 2023.
Fuel price spikes also boosted CPI more than the deflator in 2021–22 due to weights, while government electricity rebates created volatility in CPI but not in the deflator.
The decomposition uses an approach inspired by Hansen, Toscani and Zhou (2023), extended to include dwelling rents, and covers the period since the pandemic. The RBA notes that different drivers imply different policy responses: demand-driven pressures like labour costs may warrant tighter policy, while supply shocks such as import price spikes may be transitory.
For Malaysian readers, this matters because it highlights how domestic cost pressures—especially wages and rents—can sustain inflation even as global supply shocks fade. Malaysia’s headline inflation has also been elevated post-pandemic, driven in part by similar domestic factors, though Bank Negara Malaysia has pointed to broader price normalisation this year.
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