Australia's June quarter inflation rate falls to 6%, ABS reports

Australia’s inflation rate fell more than expected in the June quarter, increasing the likelihood the Reserve Bank will extend its interest rate pause next week. However, rents rose at their fastest quarterly pace in 35 years.

The headline consumer price index for the April-June period was 6% higher than a year earlier, the Australian Bureau of Statistics said on Wednesday.

That compared with the 6.2% pace expected by economists and down from 7% in the March quarter.

Prices rose 0.8% for the June quarter alone, easing from 1.4% in the previous three months. The quarterly increase was the lowest since the September quarter of 2021.

“While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel,” Michelle Marquardt, ABS head of prices statistics, said.

The trimmed mean, or underlying inflation rate that strips out more volatile price movements, came in at an annual pace to 5.9% and 0.9% for the quarter, the ABS said.

Deloitte Access economics partner Stephen Smith said the latest inflation numbers were “further evidence that the Reserve Bank has increased interest rates too far”.

“The Australian economy is softening dramatically, the pace of inflation has peaked and is moderating quickly, wage growth is not excessive and medium-term inflation expectations are not rising, Smith said. “In that context there should be no further interest rate increases in Australia.”

The RBA wants inflation to continue to moderate towards is 2%-3% annual rate by mid-2025 and has said it will keep increasing its cash rate until it is confident that trajectory will be maintained.

The economy is sending off mixed signals, with consumer and business confidence low or falling. Employers, though, were still adding jobs at a strong clip in June, leaving the jobless rate hovering near half-century lows.

Prior to today’s inflation numbers, the ASX’s rates tracker indicated there was a slightly less than 50-50 chance the RBA would raise its interest rate 25 basis points when its board gathers on 1 August.

Investors, though, dumped the Australian dollar and snapped up stocks in the immediate aftermath of the CPI data release.

The dollar shed about a third of a US cent to trade at 67.38 US cents recently, while share prices jumped about 0.5% to be 0.7% higher for the day. If Australia’s interest rates don’t have to go higher, yield hunters will head elsewhere, while companies’ profits will be buoyed if their borrowing costs don’t rise further.

Rents continued to be a major propellant for inflation, though, with rentals up 2.5% for the quarter alone and 6.7% for the year. International holiday travel and accommodation were also pricier, up 6.2%, with financial services 2.5% more costly.

“Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market,” Marquardt said. “Rental price growth for flats continued to outpace the growth for houses.”

Food prices rose 1.6% for the quarter, matching the pace in the March quarter. Within that tally, meals out and takeaway foods were 1.7% more expensive, with fruit and vegetables up 2.4% and bread and cereal products gaining 2.9%.

“A shortage of potatoes due to wet weather in key growing regions late last year has continued to place pressure on prices for potato products, including takeaway hot chips, potato crisps and frozen potato products,” Marquardt said.

Trimming the inflation rate included a 7.2% decline in the cost of domestic holiday travel and accommodation, while clothing accessories were 2.2% cheaper and automotive fuel 0.7%.

Electricity prices were down 1.8% for the quarter but will likely soar when the September quarter numbers are released in three months’ time after bill increases of as much as a third kicked in from 1 July.

For June alone, CPI came in at 5.4%, down from the 5.6% clip in May. With other seasonal prices kicking in this month, such as insurance, the July monthly number will probably show an uptick.