Australian headline inflation eased to 3.5% in July but the RBA's preferred trimmed mean held at 3.6%, keeping the door open for another rate hike. Markets price a steady September but a possible move later.
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Australian inflation eased less than expected in July, and the central bank's preferred measure did not budge at all, leaving the door open for another interest-rate increase.
The consumer price index rose 3.5% in the year to July, down from 3.8% in June, the Australian Bureau of Statistics reported. Economists had forecast a larger drop. The Reserve Bank of Australia's trimmed-mean gauge, which strips out the most volatile items and is the board's favoured signal of underlying pressure, held at 3.6%.
"If we don't see inflation coming down we will, and we'll have to, raise interest rates again," Deputy Governor Andrew Hauser warned last week.
The data showed a split between goods and services. Electricity price growth tumbled from 22.4% to 6.1% as rebate payments landed. Fresh vegetables and eggs cost less than a year ago. But meals out and takeaways rose 4.5%, reflecting higher ingredient costs and the minimum-wage increase. Childcare jumped 7.3%, hairdressing 4.4%, education 4.8% and new dwelling prices 5.7% as builders passed on labour and material costs.
The ABS also tracks non-discretionary purchases, food, shelter, healthcare, car maintenance, school fees and compulsory insurance. Those rose 3.7% in the year to July, compared with wage growth of 3.2%. Real wages for households facing unavoidable expenses are still falling.
Petrol will add pressure in the months ahead. The federal government halved the excise in April, cutting pump prices by 32 cents a litre. Half of that discount was removed in July, the month covered by the latest CPI, and the remainder came off on Aug. 3, adding about 16 cents a litre, or roughly 8%. Petrol accounts for a bit over 3% of household spending, so the excise unwinding directly adds 0.2–0.3 percentage points to inflation in July and again in August, the ABS said.
Global oil markets are the other wildcard. RBA board minutes released Tuesday noted that "global inventories of oil and oil products were much lower than at the start of the conflict" in the Middle East, suggesting any further supply shock would have a larger price impact.
The RBA left the cash rate at 4.35% at its Aug. 5-6 meeting. Its latest forecasts, published in early August, see headline inflation dropping from 3.9% in the June quarter to 3.6% in the December quarter, with the trimmed mean easing from 3.6% to 3.3%. Both measures are projected to return to the middle of the 2-3% target band by late 2027, assuming the cash rate stays unchanged.
Wednesday's CPI numbers are consistent with that trajectory on the headline. The flat trimmed mean, however, will disappoint a board that has repeatedly said it needs to see demand cool and inflation fall sustainably.
Swap markets price the RBA holding steady at its next meeting on Sept. 29, according to data from the article. But they still assign a material probability to one more hike before year-end.
The board next meets on Nov. 3, Melbourne Cup Day. By then it will have the September-quarter CPI print, due in late October. That release will be the key input into whether the next move is a hike or a long pause.
"On balance, today's numbers are unlikely to lead the Reserve Bank board to lift rates at its next meeting on 29 September," the source article noted. The warning from Hauser, and the flat trimmed mean, keep the risk firmly tilted toward tighter policy.
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