The Consumer Price Index (CPI) lifted 0.8 per cent in the June quarter, below the market’s expectation for a 1.0 per cent quarterly rise and lower than forecast by most economists.
According to data published by the Australian Bureau of Statistics (ABS) on Wednesday, this resulted in an annual rise in the CPI of 6.0 per cent over the 12 months to the end of June.
Headline inflation continued to decelerate compared to the March quarter, when the ABS reported a rise of 1.4 per cent quarter-on-quarter (q/q) and 7.0 per cent year-on-year (y/y)
“CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021,” commented ABS head of prices statistics Michelle Marquardt.
“While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.”
The ABS indicated that the most significant contributors to the lift in quarterly inflation were rents (+2.5 per cent), international holiday travel and accommodation (+6.2 per cent), other financial services (+2.5 per cent), and new dwellings purchased by owner-occupiers (+1.0 per cent).
On an annual basis, new dwellings (+7.8 per cent), rents (+6.7 per cent), and domestic holiday travel and accommodation (+13.9 per cent) were the most significant contributors.
Over the June quarter, the ABS reported that trimmed mean inflation lifted 0.9 per cent q/q and 5.9 per cent y/y, down from 1.2 per cent q/q and 6.6 per cent y/y in the March quarter.
The softer than expected inflation data comes just a week before the Reserve Bank of Australia (RBA) announces its next interest rate decision.
In its most recent statement on monetary policy in May, the RBA predicted that annual headline inflation would fall to 6.3 per cent and trimmed mean inflation to 6.0 per cent.
ANZ senior economist Adelaide Timbrell said the RBA would likely find comfort in the CPI data, as both headline and trimmed mean inflation came in below the central bank’s forecasts.
“The RBA recently highlighted that the cash rate is ‘clearly restrictive’ and that it remained to be seen if more cash rate increases are required,” she said.
“The sharp drops in headline and core CPI and in non-tradables and services inflation, the latter two both printing 0.8 per cent q/q in Q2, highlight that a 4.1 per cent cash rate may be restrictive enough to bring inflation down. This is particularly the case given monetary policy operates with a considerable lag.”
AMP chief economist Shane Oliver suggested the August rate decision would be a “very close call” given that the RBA is likely concerned about high underlying inflation year-on-year, the tight jobs market and upside risks to wages growth.
But in response to the latest inflation figures, the firm has revised down its forecast for the peak in the cash rate from 4.60 per cent to 4.35 per cent.
“Inflation continues to slow in Australia with annual measures continuing to fall from their December peak, quarterly underlying inflation as measured by the trimmed mean slowing to 3.6 per cent annualised (from a peak of 7.6 per cent annualised) and improving supply, slowing demand and falling global inflation pressures point to a further fall in Australian inflation ahead,” said Dr Oliver.
“We now see headline and trimmed mean inflation falling to 3 per cent or just below by mid next year. In our view, this should all provide scope for the RBA to remain on hold at its meeting next week.”
Reacting to the data release on Wednesday, Treasurer Jim Chalmers said that it was pleasing to see that inflation was moderating, albeit not as quickly as would be preferred.
“Inflation both here and around the world is remaining higher than we’d like for longer than we’d like, but it’s tracking downwards in the right direction,” he said.
“We know that high inflation and interest rate rises are continuing to squeeze household budgets. The Albanese government’s economic plan is focused squarely on addressing the inflation challenge.”
The latest labour force data, which showed that the labour market remains “very tight”, is also expected to play a key role in the RBA’s upcoming rate call.