This article is from the Australian Property Journal archive
INFLATION recorded its biggest monthly drop since December, with the annual underlying rate – the measure watched most closely by the Reserve Bank – falling to 3.4% in August, while housing continued to be a significant contributor to the year-on-year gain.
Also referred to as annual trimmed mean inflation or core inflation, the figure fell from 3.8% in July over the month, according to the Australian Bureau of Statistics.
The data was released a day after the RBA kept rates on hold for a seventh meeting in a row, and Michele Bullock warned that there would be no interest rate cut in the near-term as inflation remains stubbornly above its target rate of 2% to 3%.
The official cash rate remains at 4.35%, sitting idle since last November’s bump.
Bullock said the RBA would focus on the underlying measure of inflation as the headline rate measure – which fell to 2.7% in August – was being impacted by government subsidies. Commonwealth Energy Bill Relief Fund rebates and state government rebates in Queensland, Western Australia and Tasmania, drove the largest annual fall in electricity prices on record, of 17.9%.
Also in the RBA’s interest rate considerations are tight labour market conditions, which could ward off a rate cut. The unemployment rate held at 4.2% in July and August, alongside strong jobs growth, low under-employment and a record-level participation rate.
Yesterday’s inflation data showed the most significant price rises at the group level were housing (2.6%), food and non-alcoholic beverages (3.4 %), and alcohol and tobacco (6.6 %).
Within the housing group, rents softened slightly to 6.8%, and new dwelling purchases by owner occupiers inched upwards to 5.1%.
Partly offsetting the annual increase was transport (-1.1 %), driven by a -7.6% return in petrol.
“The falls in electricity and fuel had a significant impact on the annual CPI measure this month,” said Michelle Marquardt, ABS head of prices statistics.
“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,” she said.
The RBA is expecting household consumption growth to pick up in the second half of the year as the headwinds to income growth recede, but there is a risk that this pickup is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market.
A rate cut can’t come quickly enough for some Australians. Bullock warned earlier this month that some people may have to sell their homes as the nation grapples with sticky inflation and high interest rates, creating the highest level of mortgage stress in years.
