RBA likely to disregard August CPI

The Australian Bureau of Statistics (ABS) has revealed that the monthly Consumer Price Index (CPI) indicator rose 2.7 per cent in the 12 months to August 2024.

This reading was down from the 3.5 per cent recorded in July and is the lowest reading in three years, according to ABS head of prices statistics Michelle Marquardt.

The ABS revealed that the top contributors of this annual movement were housing at 2.6 per cent, food & non-alcoholic beverages (3.4 per cent), and alcohol & tobacco (6.6 per cent).

Transport (-1.1 per cent) partly offset the annual increase, according to the ABS.

The significant moderators of annual inflation in August were declines in automotive fuel and electricity, with fuel sitting 7.6 per cent lower than in August 2023 following recent price falls, while the combined impact of Commonwealth Energy Bill Relief Fund rebates and state government rebates in Queensland, Western Australia, and Tasmania resulted in a record annual decline in electricity prices of 17.9 per cent.

“The falls in electricity and fuel had a significant impact on the annual CPI measure this month,” Marquardt said.

“When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding Automotive fuel, Fruit and vegetables and Holiday travel, and the Trimmed mean can provide additional insights into how inflation is trending.”

Meanwhile, CPI inflation excluding volatile items was 3 per cent in August, down from 3.7 per cent in July, with annual trimmed mean inflation sitting at 3.4 per cent in August, down from 3.8 per cent the previous month.

Marquardt said both measures of underlying inflation in August are the lowest they’ve been for 2.5 years.

While the August CPI figures look promising as they fall within the Reserve Bank of Australia’s (RBA) coveted 2–3 per cent target band for inflation, the RBA is likely to disregard this reading in favour of the September quarter CPI figures due next month.

Dr Dwyfor Evans, head of APAC macro strategy at State Street Global Markets, said that the RBA “remains wary of inflation trends for now, so monetary policy will look through this one month of abnormal price data”.

Indeed, the RBA governor herself said yesterday (24 September) following the monetary policy decision announcement that the board must be confident that inflation will “sustainably” remain within the target band.

Michele Bullock said in the press conference yesterday: “There’s two things going on here. There’s what we’ll see in headline inflation, which is going to be affected by one-off factors and [volatility], and then there’s underlying inflation.

“Over time, the two things will converge to be together, but quarter to quarter, they can diverge.

“…the point I would make is that if tomorrow (25 September) we get an inflation number which has got a ‘two’ in front of it… that doesn’t mean we’ve got inflation under control. It doesn’t mean that inflation is sustainably back within the band.

“We need to see that there’s a consistent trend down to the band, and it’s going to stay in the band rather than dip in and out.”

Reacting to the data, CreditorWatch chief economist Anneke Thompson said the results provide “no surprises – on the upside or downside – to the RBA” and it is unlikely to shift its thinking around when rate cuts will occur.

“Given household consumption is likely to stay very subdued for the remainder of the year, it is likely that trimmed mean monthly inflation will continue its slow trend down over the next few months,” Thompson said.

Chief economist at Bendigo Bank, David Robertson, said while this data is only a "subset of the full 3Q24 CPI report", the numbers are "very encouraging for rate cuts in 2025, and certainly brings a February rate cut back into play".

“Bendigo Bank’s forecast for the easing cycle to commence in 2025 and not earlier has been unchanged since January 2023, although the precise timing (February or May 2025) remains a close call.

"Today’s data certainly helps the case for a February cut, however upcoming data and events will keep markets guessing between now and then, including the US Presidential election in November. We continue to expect at least three rate cuts next year," Robertson added.

[RELATED: Rate hike not ‘explicitly’ considered]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.