Australia: Inflation drops in July but surprises markets on the upside
Inflation edged down to 3.5% in July from June’s 3.8%. July’s figure represented the joint-weakest inflation rate since February, though it was above both market expectations and the 2.0–3.0% target range of the Reserve Bank of Australia (RBA). Looking at the details of the release, softer price pressures for transportation, housing and utilities plus clothing and footwear outweighed a faster increase in prices for food and non-alcoholic beverages.
Accordingly, the trend pointed down, with annual average inflation falling to 4.0% in July (June: 4.1%). July’s result marked the weakest reading since May 2022. Meanwhile, inflation excluding volatile items and holiday travel dropped to 3.7% from June’s 4.0%.
Lastly, consumer prices were flat month on month, which was below June’s 0.32% rise.
Our panelists expect the disinflation trend to continue throughout H2 as price pressures are tempered by tight monetary policy, a stronger-than-expected harvest in early 2024 and a higher unemployment rate weighing on private spending. Over 2024 as a whole, our Consensus is for inflation to average below 2023’s rate but outpace the RBA’s target range; price pressures are forecast to return to target in H1 2025. Faster-than-expected wage growth is an upside risk, while the performance of the AUD is key to monitor.
ING’s Robert Carnell commented:
“Although there was clearly some help from volatile items like falling gasoline prices working through the transport component, and seasonal swings in recreation and holidays also played their part in the soft July number, core measures of inflation also all fell, offering some hope that the underlying inflation picture is also improving. […] We still think a December rate cut looks unlikely. That said, we are encouraged by this latest data, which we think makes a first-quarter 2025 cut look less speculative than it had been looking.”