The Reserve Bank of Australia (RBA) is gearing up for a pivotal cash rate meeting next Tuesday, as the latest inflation data for the July quarter met market expectations.
The Consumer Price Index (CPI) rose 1.0% in the June 2024 quarter and 3.8% annually, according to the latest data from the Australian Bureau of Statistics (ABS).
Michelle Marquardt (pictured), ABS head of prices statistics, said the June quarter rise is the same as the 1.0% rise in the March 2024 quarter.
“The annual rise of 3.8% for the June quarter is up from 3.6% in the March quarter. This is the first increase in annual CPI inflation since the December 2022 quarter.”
The inflation rate has left analysts debating the central bank’s next move and the implications for its broader monetary policy.
Before the data release, bond traders had priced in about a 20% chance that the RBA will lift the cash rate 25 basis points to 4.60%, and a 31% chance at the next policy meeting in late September, according to the Australian Financial Review.
Given analysts had predicted headline inflation to come in at 3.8%, year-on-year, the statistics are likely to remain the same.
The RBA’s narrow path in delivering inflation within its 2% to 3% target band while keeping the economy growing has become narrower by its own admission in recent months.
The housing market, already feeling the impact of previous rate hikes, remains a focal point – especially since the vast majority of mortgage holders are on variable rates.
The most significant contributors to the June quarter rise were Housing (+1.1%) and Food and non-alcoholic beverages (+1.2%).
The quarterly growth in Housing was driven by Rents (+2.0%) and New dwellings purchased by owner-occupiers (+1.1%).
“The continuing tight rental market and low vacancy rates caused rental prices to go up 2.0% for the quarter, following a 2.1% rise in the March 2024 quarter,” Marquardt said.
Higher labour and material costs drove the 1.1% rise this quarter for construction of new dwellings. The increase follows a 1.1% rise in the previous quarter.
The rise in Food and non-alcoholic beverage prices was driven by Fruit and vegetables (+6.3%), Meals out and take away food (+0.6%), and Meat and seafood (+1.3%).
"Fruit and vegetable prices rose this quarter as unfavourable growing conditions drove higher prices for grapes, strawberries, blueberries, tomatoes and capsicums. This was the highest quarterly rise for Fruit and vegetables since 2016,” Marquardt said.
Annually, the CPI rose 3.8%, with slightly higher annual inflation for both goods and services than in the March 2024 quarter.
“Prices rose for goods such as tobacco, new dwellings, automotive fuel and fruit. Annual services inflation continued to be impacted by higher prices for rents and insurance,” Marquardt said.
Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI.
Annual trimmed mean inflation was 3.9%, down from 4.0% in the March quarter.
“This is the sixth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8% in the December 2022 quarter,” Marquardt said.
All eyes turn to next Tuesday’s RBA Board meeting.
