Australia has experienced an unforeseen dip in inflation, soothing concerns over the likelihood of a near-future interest rate surge.
Recently released data from the Australian Bureau of Statistics (ABS) indicates that headline inflation—representing the comprehensive rate of price increase across the economy, which includes erratic elements such as fuel—has decreased from 4 percent to 3.8 percent as of June.
This decline marks the lowest inflation rate observed since February 28, a notable date when the United States and Israel jointly commenced military action against Iran.
Meanwhile, the trimmed mean inflation, a metric favored by the Reserve Bank of Australia (RBA) that excludes volatile items to provide a clearer view of underlying inflation, held steady at 3.6 percent. This steadiness was contrary to the central bank’s projections, which anticipated an increase to 3.8 percent.
Rachel McCrick, the head of price statistics at ABS, noted that the decline in inflation last month coincided with a decrease in transportation costs.
“Lower world oil prices as a result of some stabilisation in the Middle East in June contributed to fuel prices falling 10.9 per cent in the month,” she said on Wednesday.
“The federal government’s fuel excise relief measures, which contributed to lower automatic fuel prices in April and May, also remained in place.”
The fuel excise measures reduced the cost of fuel by 32 cents a litre during the month.
However, the measure was reduced to just 16 cents in July, and will be phased out entirely from Sunday.
Treasurer Jim Chalmers said the inflation figures were reassuring following a period of economic volatility.
“It’s an encouraging outcome that shows we’ve made progress on inflation since the budget, even in the face of intense global uncertainty,” he said.
“Treasury has warned that the next phase of the conflict could be more challenging for the global economy, with the oil market now more vulnerable.”
Quarterly inflation numbers showed headline inflation falling from 4 to 3.9 per cent.
Meanwhile, the trimmed mean rose from 3.5 per cent in the March quarter to 3.6 per cent in the June quarter.
Housing remained the biggest contributor to inflation in the June monthly figures, rising by 6.8 per cent.
“Annual inflation for new dwellings has reached its highest level in almost three years, at 5.8 per cent,” McCrick said.
“This was driven by builders passing on higher material and labour costs.”
How will new inflation numbers impact interest rates?
The head of economic research at Oxford Economics Australia, Harry Murphy Cruise, said the RBA would be focused less on the headline figures and more on the breadth of price rises.
“Underlying inflation is not just resisting pressure to rise. In quarterly terms, it is continuing to ease,” he said.
“All that backs up our view that the RBA will keep rates on hold next month.”
The RBA is due to meet on 10 and 11 August to decide whether interest rates will rise from current levels of 4.35 per cent, or keep them on hold.
The bank’s governor, Michele Bullock, said on Tuesday that higher interest rates were slowing the economy as expected.
The past four years of above-target inflation had been a cautionary tale for the Reserve Bank board, she said.
“The longer it is out of target, the more concerned that the board becomes,” Bullock told a fundraising lunch at the Anika Foundation in Sydney.
“It is quite at the front of their minds. In the May forecast we had it coming back under 3 [per cent] towards the end of 2027, and that’s a long time to be above target.”