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A GAUGE of Australian monthly inflation cooled in July, suggesting price pressures began to ease in the current quarter though not fast enough to warrant early interest-rate cuts.
The consumer price indicator climbed 3.5 per cent from a year earlier, down from 3.8 per cent and just above economists’ estimate, government data showed on Wednesday (Aug 28). The trimmed mean core measure, which smooths out volatile items, advanced 3.8 per cent versus 4.1 per cent a month earlier. The result was driven by slowing price growth in clothing and footwear, electricity and fuel.
With the data unlikely to sway the Reserve Bank of Australia (RBA) from its hawkish stance, the yield on policy sensitive three-year notes climbed to 3.54 per cent while the local currency rose as much as 0.3 per cent to erase its year-to-date loss against the greenback. Money markets are still pricing in a rate cut in December.
“It looks like markets are more agitated by the slight upside miss to the headline index than accepting that the underlying story seems to be improving,” said Robert Carnell, head of Asia-Pacific research, ING Groep. “We are encouraged by this latest data, which we think makes a first-quarter 2025 cut look less speculative.”
The data come after RBA governor Michele Bullock earlier this month said she does not expect rate cuts this year and indeed warned further policy tightening may still be needed. The rate-setting board left the benchmark at a 12-year high of 4.35 per cent three weeks ago, saying it remains vigilant to upside risks for inflation.
The RBA’s goal is to bring consumer prices back within its 2 to 3 per cent target.
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“Inflation is still sticky and stubborn in our economy, but it’s coming down,” Treasurer Jim Chalmers told reporters after the release. “Our cost of living policies are helping.”
RBA policymakers are likely to take a cautious approach to Wednesday’s data given they only include part of the overall consumer price index (CPI) basket. Additionally, the July report is skewed towards goods rather than services where price pressures are proving more persistent.
July’s cooling was largely driven by energy subsidies from both national and state governments to households which had resulted in a 6.4 per cent fall in the month, the data showed.
“Excluding the rebates, electricity prices would have risen 0.9 per cent,” Leigh Merrington, ABS acting head of prices statistics, said.
The RBA has held rates this year while highlighting that aggregate demand still exceeds the economy’s supply capacity. Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth. The bank’s forecasts show core CPI only returning to the target in late 2025.
“Today’s step down in inflation was largely expected and is unlikely to be sufficient in isolation to cause the RBA to abandon its hawkish bias at its board meeting next month,” said Tony Sycamore, analyst at IG Markets.
The CPI report showed:
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The most significant contributors to the annual rise were housing, up 4 per cent, food and non-alcoholic beverages climbed 3.8 per cent and alcohol and tobacco by 7.2 per cent.
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Rents increased 6.9 per cent for the year to July, down from a rise of 7.1 per cent in the 12 months to June, reflecting continued tightness in the rental market in capital cities.
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Higher prices for strawberries, grapes, broccoli and cucumbers drove fruit and vegetable prices to their largest annual rise since December 2022. BLOOMBERG
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