Annual inflation rises to 3.8% ahead of August RBA meeting

The rate of household inflation has picked up once again, with the latest Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) revealing that prices rose by 1% in the three months to the end of June.

That 1% increase in the June quarter is the same as it was in the March quarter, but as Michelle Marquardt, the ABS's head of prices statistics notes, the annual rate of inflation has risen slightly higher.

"The annual rise of 3.8% for the June quarter is up from 3.6% in the March quarter. This is the first increase in annual CPI inflation since the December 2022 quarter."

Digging in, the major contributors to the rise in the June quarter were costs associated with housing (1.1% higher) and food and non-alcoholic beverages (1.2% higher).

"The continuing tight rental market and low vacancy rates caused rental prices to go up 2% for the quarter, following a 2.1% rise in the March 2024 quarter," Marquardt says.

"Fruit and vegetable prices rose this quarter as unfavourable growing conditions drove higher prices for grapes, strawberries, blueberries, tomatoes and capsicums. This was the highest quarterly rise for fruit and vegetables since 2016."

What does this mean for interest rates? 

Now that the latest inflation data is in, all eyes will turn to the Reserve Bank Board's next interest rate decision which will be announced on August 6 (next Tuesday afternoon).

At its last meeting in June the RBA Board held the official cash rate steady at 4.35%, as has been the norm since it increased rates last November.

But hotter than anticipated monthly inflation data that came out after that RBA's June meeting has stirred up speculation that the central bank could be forced to seriously consider another hike.

So how might the inflation figures released today weigh on that possibility?

In a brief released last week, Commonwealth Bank economist Stephen Wu noted that he was expecting headline inflation to come in at 1% for the quarter and 3.7% annually, and for trimmed mean inflation (which the RBA reportedly prefers to focus on) to come in at 0.9% for the quarter and 3.9% annually.

"An outcome broadly in line with our forecasts would see the RBA on hold in August," he wrote.

Given that today's inflation figures were roughly in line with those forecasts, along with those made by many other economists, it's possible then that the Reserve Bank Board could maintain rates at their current level when it meets next week.

Of course, we'll have to wait until next Tuesday to find out. But given that another cash rate hike would add hundreds, if not thousands of dollars to annual loan repayments, a rate hold will be an outcome many homeowners with a mortgage will no doubt be holding out for.