2 hours ago
5
Official inflation figures show prices are not growing as fast as feared by the Reserve Bank, effectively wiping out the chance of an interest rate rise at the bank’s August meeting.
Figures released this morning by the Australian Bureau of Statistics showed annual headline inflation falling to 3.8 per cent in June. The bank had been expecting it to reach 4.8 per cent.
More importantly, the underlying measure of inflation – which seeks to take out extreme price increases and drops – was flat at 3.6 per cent. The RBA had forecast it to hit 3.8 per cent in June.
The underlying measure was even better than what markets had expected with economists tipping it at 3.7 per cent.
Before the figures, markets had put the chance of a rate hike at just 22 per cent at the August 10 and 11 meeting.
According to the bureau, overall prices fell by 0.1 per cent in June. The biggest declines were in areas such as vegetables, eggs, lamb, wine, clothing for women and children, men’s shoes, furniture and household appliances.
The single largest drop was petrol, with prices down 10.9 per cent across the country in June after a similarly large fall in May.
The better-than-expected figures had an immediate impact. The ASX200, which was already up 1.1 per cent before the data and moved higher on hopes the Reserve Bank is finished with rate rises.
The Australian dollar also dropped sharply to US69.5¢, its lowest level in several weeks, as expectations of a further rate rise evaporated. Interest rates on government debt also nose-dived.
The bureau’s head of price statistics, Rachael McCririck, said underlying inflation was now the same as it was a year ago.
But areas of high price growth remain.
Electricity prices are 22.4 per cent up on a year ago, largely due to the end of government subsidies and rebates.
Annual inflation for the construction of new homes has reached 5.8 per cent, its highest level in almost three years. The bureau noted this was largely due to builders passing on higher material and labour costs.
Recreation and culture prices have climbed by 3.3 per cent over the past 12 months, up from 2.4 per cent in the year to May.
“Prices for holiday travel and accommodation rose 4.6 per cent in June driven by more travel to the northern hemisphere with the start of their peak tourist season and higher jet fuel prices,” she said.
Across the capital cities, prices were flat in Sydney, Melbourne and Darwin while they fell in every other centre.
Inflation is now down to 3.2 per cent in Melbourne while it is highest in Adelaide and Darwin at 4.2 per cent.
More to come
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.
