Latest CPI data expected to keep rates on hold
The monthly consumer price index indicator has risen 3.5 per cent in the last 12 months, according to the latest ABS data.
That latest data from the Australian Bureau of Statistics (ABS) indicates the monthly consumer price index (CPI) indicator is sitting at 3.5 per cent for July, down from 3.8 per cent in June.
The ABS said the most significant contributors to the annual rise were housing, food and non-alcoholic beverages, alcohol, tobacco and transport.
AMP’s deputy chief economist Diana Mousina said for the Reserve Bank of Australia (RBA), the inflation data is consistent with rates being on hold for now.
“Currently inflation is still too high for the RBA to consider a reduction in interest rates, however there is also no need for rate hikes,” she commented.
“While the market is pricing in a rate cut by the end of this year from the RBA, we think the first 0.25 per cent cut will come in February, with the cash rate to decline to 4.1 per cent from 4.35 per cent.”
The CPI figure is slightly higher than what most economists had predicted, yet will still provide a small “sigh of relief” for consumers and businesses in all sectors.
GoCardless ANZ general manager Luke Fossett said by the CPI indicator serving as motivation for the RBA to remain stagnant on current rates, businesses may be encouraged to make “economic movement”.
“This many encourage some much-needed economic movement for Aussie small businesses that have continued to struggle with reduced consumer spending, late payments and rising operational costs,” he remarked.
“Relief for consumers ultimately means better times for businesses.”
According to AMP, the inflation data brings both good and bad news.
In a positive sense, underlying inflation pressures measured by the monthly trimmed mean declined for the second consecutive month to 3.8 per cent year-on-year from 4.1 per cent previously, after trending upward from January to May.
However, some goods items which have been major drivers of disinflation in the past year have now recorded a large increase over the month of July, such as grocery items and gas prices.
Mousina said that though there are some negatives to the CPI, some inflation pressures have continued to abate.
“While a lot of the fastest growing prices are still concentrated in services items, they tend to show the lagged impact from previous inflation indices,” she said.
“For example, health, car and home content insurers have raised premiums this year citing increasing labour and equipment costs; but both wages growth and goods inflation in these industries have rolled over.”
Though the recent ABS data is unlikely to ease monetary policy in the short term, consumers and businesses can at least be assured there will also be no rate hike drive from the RBA.
