ISCOVER
ISCOVER
The latest Monthly Consumer Price Index (CPI) indicator figures released by the Australian Bureau of Statistics (ABS) have revealed a rise of 3.5 per cent in the 12 months to July 2024.
This was down from the 3.8 per cent recorded in June, showing further moderation from the 4 per cent recorded the month prior to that.
According to the ABS, the most significant contributors to the annual rise were housing (4 per cent), along with food & non-alcoholic beverages (3.8 per cent), alcohol & tobacco (7.2 per cent), and transport (3.4 per cent).
Leigh Merrington, ABS acting head of prices statistics, said: “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 per cent in July, down from 4.0 per cent in June.”
When looking at housing inflation, the July figures revealed a drop from 5.5 per cent in June, with rents increasing by 6.9 per cent, down from 7.1 per cent, which showed continued tightness in the capital city rental market.
Meanwhile, the annual rise in new dwelling prices has remained around the 5 per cent mark since August 2023 as builders pass on higher costs for materials and labour.
The drop in housing inflation is largely attributed to the falls in electricity prices, which fell 5.1 per cent in the 12 months to July, down from a rise of 7.5 per cent in June due to the introduction of new Commonwealth and state rebates by the government.
Merrington said: “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.
“In addition, State-specific rebates were introduced in Western Australia, Queensland, and Tasmania. Altogether these rebates led to a 6.4 per cent fall in the month of July. Excluding the rebates, Electricity prices would have risen 0.9 per cent in July.”
Reacting to the figures, CreditorWatch chief economist Anneke Thompson said the decline was “as expected” although all measures “are still above the Reserve Bank of Australia’s (RBA) upper target limit of 3 per cent”.
“The goods and services in the CPI basket that recorded consistently strong price increases continue to be those that have low or no sensitivity to interest rate movements,” Thompson said.
“It can be argued that rents are interest rate sensitive, though in the reverse outcome that the RBA wants to achieve – that being higher interest rates result in higher rents as many investors need to pass on mortgage cost increases.”
Thompson said that the July figures along with recent labour force and business and consumer sentiment surveys reflected continued slowing demand for discretionary goods and services along with signs that the economy is “still on track for a ‘soft landing’ out of this monetary policy cycle”.
However, she said that there are “many subtle signs” of growing distress among mortgage holders and businesses.
“The unemployment rate will be watched closely now by the RBA, and any indication that it is rising faster than its forecast may give it the impetus to follow overseas central banks and cut the cash rate before the year is out,” Thompson said.
The RBA is expected to continue to hold the cash rate at 4.35 per cent at its next meeting in late September.
Governor Michele Bullock said following the August meeting that a rate cut was not on the agenda for the board in the near term as inflation continues to meander above the target range of 2–3 per cent.
The minutes from the August meeting said that central bank has adopted a lower level of tolerance for stubborn inflation, assessing that the risk of inflation not returning to target within a reasonable time frame has increased.
[RELATED: Is the RBA growing impatient in the fight against inflation?]
ISCOVER 
