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RBA expected to look past August’s ‘abnormal’ price data
Monetary policy is expected to look through Wednesday’s abnormal price data, after it came in below 3 per cent.
The monthly CPI indicator rose 2.7 per cent in the 12 months to August, according to the latest data from the Australian Bureau of Statistics (ABS).
Down from 3.5 per cent in July, the reading is the lowest since August 2021.
As expected by economists and flagged by Reserve Bank (RBA) governor Michele Bullock after the RBA delivered another rate hold on Tuesday, the consumer price print showed the effects of government cost-of-living relief measures.
Mainly, the print reflected a record 17.9 per cent annual drop in the price of electricity on the back of the combined impact of Commonwealth Energy Bill Relief Fund rebates and state government rebates in Queensland, Western Australia and Tasmania.
“The falls in electricity and fuel had a significant impact on the annual CPI measure this month. When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding automotive fuel, fruit and vegetables and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending,” Michelle Marquardt, ABS head of prices statistics, said.
CPI inflation excluding volatile items and holiday travel was 3.0 per cent in August, down from 3.7 per cent in July, while annual trimmed mean inflation, which excluded both the falls in automotive fuel and electricity, alongside other large price rises and falls, was 3.4 per cent in August, down from 3.8 per cent in July.
“Both measures of annual underlying inflation in August are the lowest they have been for 2.5 years,” Marquardt said.
Commenting on the data, Anneke Thompson, chief economist at CreditorWatch, said the print is unlikely to shift the RBA’s thinking around the timing of the first cut to the cash rate.
“The best measure to look at in today’s data is the trimmed mean, which fell on an annual basis from 3.8 per cent in July 2024 to 3.4 per cent. While still outside the RBA’s target range, it is moving in the right direction and at a consistent pace,” Thompson said.
“Given household consumption is likely to stay very subdued for the remainder of the year, it is likely that trimmed mean monthly inflation will continue its slow trend down over the next few months.”
Similarly, Dwyfor Evans, head of APAC Macro Strategy at State Street Global Markets, said: “The RBA remains wary of inflation trends for now, so monetary policy will look through this one month of abnormal price data.”
On Tuesday, elaborating on the central bank’s decision to keep interest rates on hold for another month, Bullock said the central bank is still grappling with “sticky” inflation, with current projections indicating that it will take time before inflation falls within the bank’s target range.
Acknowledging the likelihood that the CPI print would come in below 3 per cent, the governor said: “That is important because it is reflecting cost-of-living relief, but it is not really reflective of the underlying inflation pulse.”
The real issue is services inflation, which she described as the “crux of the matter”.
“What that reflects is that demand is still a little bit above supply.”
Political shuffle continues
After the Treasurer and the shadow treasurer offered very diverse perspectives on the RBA’s rate hold on Tuesday, the pair’s paths continued to diverge in response to the latest CPI print on Wednesday.
Speaking to media, Jim Chalmers said the drop in headline inflation is “very welcome, very encouraging and very heartening”.
“Whether it is rent [or] energy rebates, our cost-of-living policies are an important part of the story but not the whole story here.”
Angus Taylor, on the other hand, declared that Australia is “no closer to an interest rate cut than we were yesterday”.
“We’re no closer to inflation sustainably coming within the target range than we were yesterday,” the shadow treasurer said.
“We need to see a sustainable reduction in prices if we’re to see interest rate cuts, and if we’re going to see the restoration of standard of living for Australians that we all want to see.”
Toeing the party line, Taylor added: “Australia remains close to the back of the pack in dealing with our core inflation.”
Over recent weeks, the RBA has come under increased pressure to reduce interest rates, however, Bullock stressed on Tuesday that she is drowning out the noise by focusing solely on the data, which, at this stage, suggest there will be no rate cuts in the near term.
AUTHOR
Maja Garaca Djurdjevic
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