Australia’s monthly inflation accelerates more than expected
The RBA cut its cash rate by a quarter-percentage point this month to 3.6%, its third reduction of the year
[SYDNEY] A gauge of Australia’s monthly inflation accelerated faster than expected in July, moving closer to the top of the Reserve Bank of Australia’s (RBA) 2 to 3 per cent target and supporting a gradual approach to cutting interest rates.
The Consumer Price Index (CPI) indicator jumped 2.8 per cent, compared with economists’ estimate of a 2.3 per cent gain, data from the Australian Bureau of Statistics (ABS) showed on Wednesday (Aug 27). The trimmed mean measure, which smooths out volatile items such as food and energy and is the focus of the RBA’s attention, rose 2.7 per cent in July from 2.1 per cent in the prior month.
“This is the highest annual inflation rate since July 2024, following several months of easing,” Michelle Marquardt, ABS head of prices statistics, said. Housing was among the largest contributors to the annual movement.
The Australian dollar edged higher to outperform its major developed market peers after the data. Policy-sensitive three-year government bond yields were three basis points higher at 4.43 per cent, extending an earlier gain as traders trimmed expectations of RBA rate cuts to the next year.
The RBA cut its cash rate by a quarter-percentage point this month to 3.6 per cent, its third reduction of the year. Governor Michele Bullock said that the central bank will need to ease a couple more times to meet its forecasts for inflation and employment, though she signalled a desire to tread carefully.
Money market pricing implies a less than 40 per cent chance of a fourth cut when the RBA next meets at the end of September, with an easing fully priced in for November.
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Bullock has described the monthly CPI indicator as volatile and “not quite representative of what’s really going on with inflation”. She has expressed greater confidence on the more comprehensive quarterly inflation report.
The monthly gauge still gives RBA officials a sense of the trajectory of consumer prices. Last month, the ABS said that it will begin publishing a complete monthly measure of inflation from Nov 26, addressing a long-standing gap in Australia’s economic data. The development will bring the nation in line with most of its developed-world peers.
Wednesday’s figures also showed:
- The largest contributors to the rise were housing, up 3.6 per cent, food and non-alcoholic beverages and alcohol and tobacco
- Electricity costs rose 13.1 per cent in the 12 months to July, compared with a 6.3 per cent fall in the 12 months to June, as households in New South Wales and the ACT did not receive government rebates last month
- Rents rose 3.9 per cent in the 12 months to July, following a 4.2 per cent rise in the 12 months to June, the lowest since November 2022
‘While annual inflation eased for some food categories in July, coffee, tea and cocoa prices continued to rise, up 14.4 per cent, said Marquardt. “This comes as supply has been affected by adverse weather conditions impacting major overseas coffee bean-growing areas.” BLOOMBERG
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