Borrowers can breathe a sigh of relief as highly-anticipated inflation numbers landed soft enough to dissolve fears of another interest rate hike.
Poppy Johnston in Canberra
The annual rate of headline inflation did accelerate, however, rising to 3.8 per cent, up from 3.6 per cent, marking the first increase in the consumer price index in 18 months, the Australian Bureau of Statistics said.
Yet a higher June quarter number was expected by the Reserve Bank of Australia and economists, with the headline figure in line with consensus forecasts.
The annual trimmed mean, the central bank’s preferred measure of underlying inflation, undershot expectations a little to come in at 3.9 per cent, down from four per cent in March.
This was sixth quarter of lower annual trimmed mean inflation in a row, the bureau said on Wednesday.
Deloitte Access Economics partner Stephen Smith said the June consumer price index should “put to rest the tired notion the RBA should lift rates”, a move he believes would “tempt a recession”
“What we have seen today is confirmation that inflation and inflationary expectations are not running rampant,” he said.
The factors still driving inflation, such as rents – pushed higher by housing shortages – and fruit prices – rocked by bad weather – were not fixed by higher interest rates, Mr Smith said.
ABS head of prices statistics Michelle Marquardt said slightly higher annual inflation was recorded for both goods and services when compared with the March quarter numbers.
“Prices rose for goods such as tobacco, new dwellings, automotive fuel and fruit,” she said, adding annual services inflation continued to be pushed higher by rents and insurance.
Betashares chief economist David Bassanese said the consumer price index for June should rule out an interest rate hike at the August interest rate meeting next Tuesday.
“Those with a mortgage can breathe a sigh of relief, at least for now, though Australia retains a sticky inflation problem and interest rate increases at some stage this year can still not yet be confidently ruled out,” he said.
Trimmed mean data came in a slightly higher than the RBA’s own forecasts, the economist observed, though he said that was “very unlikely” to trigger a hike next week.
The central bank also received another important data source for interest rate setting, retail sales, which rose another 0.5 per cent in June to follow May’s 0.6 per cent.
Sales were boosted by shoppers taking advantage of end-of-financial year savings, the ABS said, particularly for discretionary item such as furniture and clothing.
Treasurer Jim Chalmers stressed inflation could “zig and zag on the way down” and highlighted his government’s efforts to help temper inflation.
“We have delivered the first back-to-back surpluses in almost two decades, which the RBA governor has said are helping in the fight against inflation,” he said.
Rapidly rising rents and building costs were the key driver of the acceleration in overall consumer prices, the ABS said, alongside the largest quarterly jump in fruit and vegetable costs since 2016, as bad weather hit growers in the quarter and limited supply.
Pain at the pump was also on display with petrol prices climbing 7.7 per cent in the year to June, from 5.2 per cent three months earlier.
A chronic lack of available homes pushed rents 7.3 per cent higher in the year to June. Though that is down from 7.8 per cent in March. The annual increase in building costs was roughly steady at 5.1 per cent.
Financial markets continued to price in a one-in-four chance of a 14th interest rate rise next week.
