Australia’s monthly inflation eases to lowest in three years
A PARTIAL gauge of Australian inflation cooled in August as government assistance to cushion the impact of energy costs kicked in, dragging down headline prices.
The consumer price index (CPI) indicator advanced 2.7 per cent from a year earlier, matching economists’ median estimate, Australian Bureau of Statistics (ABS) data showed on Wednesday (Sep 25). That’s the first time since August 2021 that it has fallen below the 3 per cent upper band of the Reserve Bank of Australia’s (RBA) target.
The trimmed mean core measure, which smooths out volatile items and is the focus of the RBA’s attention, eased to 3.4 per cent from 3.8 per cent a month earlier.
“Both measures of annual underlying inflation in August are the lowest they have been for 2.5 years,” said Michelle Marquardt, ABS head of prices statistics.
The yield on policy sensitive three-year government notes trimmed an intraday gain and the currency retreated from a 19-month high posted earlier in the session.
Falls in automotive fuel and electricity were significant moderators of annual inflation, the ABS said. For electricity, the combined impact of federal and state rebates drove the largest annual fall in electricity prices on record.
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The data come a day after the RBA’s rate-setting board kept its benchmark at a 12-year high of 4.35 per cent, saying it remains vigilant to upside risks to inflation. Governor Michele Bullock reiterated that she does not expect rate cuts this year and noted that the monthly inflation gauge is “quite volatile”, does not capture all items and can be influenced by one-off or temporary factors.
Bullock said that if Wednesday’s data came in with a two in front of it, “that does not mean that we have got inflation under control. It does not mean that inflation is sustainably back within the band. It just means it’s back there at the moment,” she told reporters after the September policy meeting.
The RBA’s goal is to bring consumer prices back within its 2 to 3 per cent target and ensure they remain there.
The hawkish message underlines the RBA’s struggle to rein in prices – the bank having nudged back its timing for core price growth to return to the target midpoint. Australia’s position contrasts with counterparts from New Zealand to the US and the UK that have already embarked on easing cycles.
The RBA adopted a different strategy to contain post-pandemic inflation as it wanted to preserve job gains. Australia hiked less steeply than peers which resulted in its benchmark rate being about one percentage point lower than the Federal Reserve.
The RBA has kept rates unchanged this year, while highlighting that aggregate demand still exceeds the economy’s supply capacity. The bank’s forecasts show core CPI only returning to the target band in late 2025.
The report also showed:
- Housing climbed 2.6 per cent, food and non-alcoholic beverages advanced 3.4 per cent and alcohol and tobacco rose 6.6 per cent.
- Federal and state energy rebates drove a record 17.9 per cent fall in electricity prices while fuel was 7.6 per cent lower.
- Rents were up 6.8 per cent in the year to August, reflecting tight markets in most major cities.
- New dwelling prices, which capture new builds and major renovations, rose 5.1 per cent and have remained around 5 per cent for the past year with builders passing on higher costs for labour and materials, the ABS said. BLOOMBERG
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