Consumer prices rose 0.8 per cent over the three months to June, making a 6 per cent increase over the past year.
The result is slightly lower than most economists were expecting and reduces the chances of a Reserve Bank interest rate rise next Tuesday.
The Reserve Bank’s preferred measure of underlying inflation, which excludes the most volatile price changes, came in at 0.9 per cent for the quarter and 5.9 per cent over the 12 months to June.
The RBA targets an inflation rate of 2-3 per cent, with quarterly inflation now running at an annualised pace of 3.6 per cent on its preferred trimmed mean measure.
Sean Langcake, from Oxford Economics, said that even though inflation remained above target, it was coming down more quickly than the Reserve Bank expected in its most recent forecasts.
“While there are still concerns around the labour cost outlook, we think these data will buy the RBA some more time and allow them to keep rates on hold a little longer,” he argued.
Financial markets agree, with the odds of a rate hike in August dropping from just over 50 per cent to around 30 per cent, according to Refinitiv data.
Has the RBA already gone ‘too far’?
Stephen Smith from Deloitte Access Economics went further, slamming the Reserve Bank, and much of the economics profession, for its response to the inflation spike.
“The inflation data released today is further evidence that the Reserve Bank has increased interest rates too far,” he wrote in a note responding to the figures.
“Excessive inflation in Australia has mostly been caused by supply side factors, meaning that interest rate increases have mostly been ineffective at bringing inflation under control.
“Rather, inflation has fallen as a result of repairs to global supply chains and an easing of import prices.
“The Australian economy is softening dramatically, the pace of inflation has peaked and is moderating quickly, wage growth is not excessive and medium-term inflation expectations are not rising. In that context there should be no further interest rate increases in Australia.”
In fact, he argued the further interest rate rises could even reinforce some of the current drivers of inflation.
“In those areas of the Australian economy that are still seeing strong price growth – namely housing and energy markets – supply side challenges are similarly to blame,” he continued.
“Higher interest rates will not encourage a faster energy transition, nor unleash a wave of home building. Instead they will make these issues worse.”
However, Marcel Thieliant, from Capital Economics, said he still believed the Reserve Bank should implement at least one more rate rise.
“The bank may well conclude that the battle against inflation has been won,” he noted.
“However, we think that this would be a risky move given that the slowdown in inflation was driven by weaker goods inflation, which plunged from 7.6 per cent to 5.8 per cent.
“Services inflation, which the RBA believes is stickier, accelerated further from 6.1 per cent to 6.3 per cent, the highest it has been since the launch of the GST two decades ago.”
Rents rise at fastest pace since 1988
Falling prices for domestic travel and accommodation (-7.2 per cent), electricity (-1.8 per cent), clothing accessories (-2.2 per cent) and automotive fuel (-0.7 per cent) helped lower inflation over the quarter.
However, those price cuts were offset by rising rents (+2.5 per cent), international holiday travel and accommodation (+6.2 per cent), other financial services (+2.5 per cent), new dwellings purchased by owner-occupiers (+1.0 per cent) and food (+1.6 per cent).
The surge in asking rents seen over the past year or so has finally fed through to a jump in the official Australian Bureau of Statistics measure as more leases have rolled over.
“Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market,” noted Michelle Marquardt, the ABS head of price statistics.
“Rental price growth for flats continued to outpace the growth for houses.”
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