Quarterly states and territories chart pack: Inflation moderates at different speed across Australia’s states and territories

March quarter states and territories chart pack: February 2025

In brief

• Australia’s headline inflation has moderated but varying price growth across the states and territories partly reflects the tightness of housing markets and energy and transport subsidies introduced by some governments.
• Inflation is highest in Perth reflecting strong increases in the cost of new dwellings, while it is lowest in Brisbane, Hobart and Darwin, given government subsidies.
• Most states and territories are expecting higher headline inflation rates in FY26 as energy rebates come to an end.
  

Since peaking at 7.8 per cent annual growth in the year to December 2022, Australia’s headline inflation has continued to moderate over the past two years. Headline inflation was 2.4 per cent in the year to December 2024 and has now been within the Reserve Bank of Australia’s 2-3 per cent target band for two consecutive quarters. This has been driven by decreases in electricity prices, due to both federal and state government subsidies, and a fall in fuel prices due to lower global oil prices. At the same time, the pace of price growth in new dwellings as well as food and non-alcoholic beverages has eased. However, price growth for services continues to remain elevated - at 4.3 per cent - with strong growth in essentials such as rents, health services and insurance.

Given the impact of government rebates on headline inflation numbers, it is important to look at trimmed mean inflation, which strips out volatile price movements and provides an indication of underlying price pressures in the economy. It fell to a 3-year low of 3.2 per cent in December 2024. Trimmed mean inflation is the Reserve Bank’s preferred inflation measure and most important for the setting of interest rates. While temporary falls in headline inflation do not directly affect underlying inflation, they still provide much relief to Australian consumers. Further, some administered prices of goods and services are indexed each year based on the level of headline inflation, suggesting it’s decline has an important role in keeping future price increases contained.

Looking at inflation across the capital cities, price growth varies, partly reflecting the tightness of the housing market and the level of energy and transport subsidies introduced by some state governments. Inflation is highest in annual terms in Perth at 2.9 per cent in December 2024 while Brisbane, Hobart, and Darwin each have inflation below 2.0 per cent.

Inflation in Perth has been highest due to strong increases in the cost of new dwellings, which peaked at 19.1 per cent growth annually in September 2024 and remained elevated at 13.6 per cent in December. This is well above the other states, which all recorded new dwelling price growth below 5 per cent in December. The strong price growth in Perth reflects demand for property exceeding available supply. Construction cost increases have occurred with builders passing on higher building material and labour costs. Demand has also been boosted by high population growth, with Western Australia recording a growth rate of 2.8 per cent. Investor activity in the state has also been boosted by interstate investors, attracted by relative affordability and high rental yields.

There is also significant divergence across states in growth in rents. Perth, which has the second lowest vacancy rate among states at 1.5 per cent in January 2025, recorded the highest annual growth in rents at 10.1 per cent in December 2024 and has had the highest rental growth of the states for the past year. Sydney, Melbourne, Brisbane and Adelaide all recorded strong rental price growth above 6 per cent in December 2024, reflecting low vacancy rates. Weaker growth in rents were recorded in Canberra and Darwin where vacancy rates are higher, while rents fell in Hobart by 1.1 per cent in December 2024 in annual terms.

Electricity prices fell in all states and territories over the year to December 2024 due to the Australian Government Energy Bill Relief Fund, which provides $300 in energy rebates to households. On top of Federal government energy rebates, some state governments have provided additional support which has lowered electricity prices further. The largest decrease was in Brisbane where electricity prices fell by 77.7 per cent in the year to December 2024, reflecting the Queensland Government’s one-off $1,000 rebate. Similarly, the Western Australian Government has provided a $400 rebate, with electricity prices in Perth falling by 22.9 per cent over the year to December 2024. In Tasmania, the Government provided a $250 Renewable Energy Dividend leading to electricity prices falling by 13.7 per cent.

The price of urban transport fares has also fallen sharply in some states due to state governments providing subsidies. The largest fall was in Brisbane, where transport fares fell by nearly 50 per cent in December 2024 in annual terms due to the Queensland Government introducing 50 cent public transport fares. Perth, Hobart, Canberra and Darwin also saw large transport price reductions due to state government schemes which each offered free public transport at various times. Transport fares increased by the most in Sydney and Melbourne, growing by 3.6 per cent and 4.8 per cent respectively in December 2024 in annual terms.

State and Territory Treasury forecasts of inflation in FY25 and FY26 vary, reflecting both economic conditions and government cost-of-living relief. Queensland and Tasmania Treasuries are forecasting inflation to be 2.0 per cent and 1.75 per cent, respectively, this financial year, which is the lowest of the states and partly reflects state government electricity and urban transport subsidies. While South Australia’s Treasury is expecting inflation to increase by 3.25 per cent this financial year, the highest of the states, partly due to elevated construction costs. In FY26 most State and Territory Treasuries expect inflation to be within the Reserve Bank’s target band, apart from Queensland and Tasmania which are forecasting slightly higher inflation at 3.25 per cent and 3.5 per cent, respectively, as electricity subsidies end. Inflation across all capital cities is expected to be within the Reserve Bank’s target band in FY27.

Inflation is likely to remain low over the first half of this year, as price pressures continue to ease and cost-of-living support measures, in particular energy rebates, remain in place. However, most states are expecting higher inflation in FY26 as energy rebates come to an end.

Upside risks to inflation persist. Labour markets are relatively tight, with the unemployment rate remaining close to record lows in most states and territories. Labour productivity growth has been weak and if this trend continues it could put upward pressure on unit labour costs. Tax cuts, cost-of-living support, higher real incomes and interest rate cuts are expected to support household consumption going forward, with a recovery in economic growth. The potential for geopolitical tensions, including potential blanket tariffs from the Trump Administration, which may lead to a lower Australian dollar and drive inflation higher, is also a risk.

Government spending as a share of the economy is at a record high and with an upcoming Federal election, the potential for further election promises also risks adding to inflation. Both sides of politics have already made election commitments costing billions of dollars, which could add to demand in constrained sectors of the economy such as infrastructure, increasing cost pressures for businesses.