New CPI data shows inflation eased in July
The monthly Consumer Price Index (CPI) indicator rose 3.5% in the 12 months to July, down from 3.8% in June, according to the latest data from the Australian Bureau of Statistics (ABS).
The most significant contributors to the annual rise were housing (+4%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+7.2%), and transport (+3.4%).
"CPI inflation is often impacted by items with volatile price changes like in automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI to see underlying inflation, which was 3.7% in July, down from 4% in June," says ABS acting head of prices statistics Leigh Merrington.
Housing rose 4% in the 12 months to July, down from 5.5% in June. Rents increased 6.9% for the year to July, down from a rise of 7.1% in the 12 months to June, reflecting continued tightness in the rental market in capital cities.
The annual rise in new dwelling prices has remained around 5% since August 2023, with builders passing on higher costs for labour and materials.
The lower increase in housing for the year to July was primarily due to falls in prices for electricity.
Electricity prices fell 5.1% in the 12 months to July, down from a rise of 7.5% in June. The introduction of new Commonwealth and State rebates drove the fall in July.
"The first instalments of the 2024-25 Commonwealth Energy Bill Relief Fund rebates began in Queensland and Western Australia from July 2024 with other States and Territories to follow from August," Merrington says.
"In addition, state-specific rebates were introduced in Western Australia, Queensland, and Tasmania. Altogether these rebates led to a 6.4% fall in the month of July. Excluding the rebates, electricity prices would have risen 0.9% in July."
Betashares chief economist David Bassanese says that while the further slowing in annual inflation is welcome, it may not mean an interest rate cut is on the cards.
"Today's July CPI report showed a welcome further slowing in annual inflation, albeit the result was a touch higher than market expectations and appears heavily influenced by the introduction of new energy price subsidies by both the federal and some state governments.
"The RBA is not likely to be overly excited by the result and it does not add to the case for a rate cut anytime soon," he says.
"What's more, the total impact of subsidies since July last year appears to be keeping electricity prices 16.5% lower than they would otherwise be.
"All up, the RBA is likely firmly on hold until it gets further conviction of falling underlying inflation from the more detailed and reliable quarterly CPI report. And it will likely require at least two encouraging quarterly CPI results before it could act, suggest the first potential rate cut at this stage would not come until February next year (after the December quarter CPI result in late January)."
This article first appeared on Financial Standard
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