Australia’s inflation dropped further in July as the price growth of many consumer products stabilised, prompting economists to expect the Reserve Bank to pause its interest rate hiking cycle again in September.
The figure was lower than market expectations of a 5.2 percent increase and well below the peak of 8.4 percent in December 2022.
However, ABS head of prices statistics Michelle Marquardt said the drop in CPI was less significant if excluding volatile price movements in automotive fuel, fruit and vegetables, and holiday travel.
While Treasurer Jim Chalmers welcomed the July results, he remained cautious about the ongoing impact of inflation on Australian households.
“It’s pleasing to see inflation is moderating but we know it will remain higher than we’d like for longer than we’d like.”
Price Movements of Major Consumer Products
Housing prices were the largest contributor to July’s CPI, with a growth rate of 7.3 percent, followed by food and non-alcoholic beverages (up 5.6 percent).However, the growth in CPI was partly offset by price falls in automotive fuel (down 7.6 percent) and fruit and vegetables (down 5.4 percent).
Within the housing category, the annual increase in dwelling prices fell from 6.6 percent to 5.9 percent in the month while rents climbed from 7.3 percent to 7.6 percent.
Meanwhile, electricity prices jumped by 15.7 percent over the past 12 months, partly due to annual price reviews by energy market regulators across all capital cities in July.
However, the ABS said the rebates from the Energy Bill Relief Fund introduced by the federal government as part of its $14.6 billion cost of living package had helped lower electricity price growth nationwide.
“If we exclude the impact of rebates from the July 2023 figures, electricity prices would have recorded a monthly increase of 19.2 percent,” Ms. Marquardt said.
Food and non-alcoholic beverages reported a more modest price increase at 5.6 percent, down from seven percent in the previous month.
“Food inflation continues to ease across most categories, while fruit and vegetable prices fell 5.4 percent compared to 12 months ago due to favourable growing conditions leading to increased supply,” Ms Marquardt said.
Potential Impact on Reserve Bank’s September Interest Rate Decision
As inflation continues to trend down, many economists have predicted that the Australian economy is likely to avoid an interest rate increase in September.Sally Tindall, the research director at the financial comparison website RateCity, warned borrowers to stay on their guard despite the prospect of another hold on interest rate hikes.
The central bank kept the official cash rate unchanged at 4.1 percent in July and August due to significant decreases in inflation in these two months.
It also wanted to observe how the impact of the previous 12 consecutive rate hikes unfolded in the economy.
“Inflation is now coming down nicely. At an annual rate of 4.9 percent, it’s still too high, but the data is tracking in the right direction.
“While there’s a chance we’re already at the peak, it’s impossible to rule out further hikes altogether.