Inflation rises to 3.8% amid hopes the RBA will hold off hiking interest rates again

Australia’s mortgage holders have another nervous wait ahead of them as the country’s inflation rate accelerated in the June quarter but a core measure eased, giving hope the Reserve Bank (RBA) will hold off hiking its interest rate again.

The consumer price index rose to 3.8% in the June quarter from a year earlier, the Australian Bureau of Statistics said on Wednesday. That result was consistent with economists’ forecast of 3.8% and was up slightly on the March quarter rate of 3.6%.

On a quarter-on-quarter basis, CPI rose 1%, consistent with the 1% expected and 1% in the March quarter.

Among the big increases in the quarter, housing costs were up 1.1%, food and non-alcoholic beverages rose 1.2% and clothing and footwear prices gained 3.1%, the ABS said.

A trimmed mean – the core inflation measure that strips out more volatile price movements – came in at 3.9% compared with a year earlier. Economists had expected that to be unchanged from the March quarter at 4%. The quarterly rate eased to 0.8% from 1%, heading in the direction the RBA wanted.

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While the headline CPI inflation was up for the first quarter since the end of 2022, Jim Chalmers instead highlighted the sixth consecutive drop in core inflation.

“We need inflation to moderate further and faster,” the treasurer said, adding inflation was as “sticky and stubborn in our economy as it has been in other economies earlier in the year”.

“These numbers will continue to make progress when it comes to underlying inflation.”

The figures will be scrutinised by the RBA board when it meets next Monday and Tuesday. The central bank, which hasn’t lifted the cash rate since November, has said it wouldn’t hesitate to act if inflation was not on track to reach its target range of 2-3% by the end of 2025.

The economy, though, was close to stalling in the March quarter and governor Michele Bullock has said the RBA is trying to navigate a narrow path of maintaining growth while reining-in inflation. The labour market, so far, has also kept generating many jobs even as the jobless rate has ticked above 4%.

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Prior to today’s data, financial markets estimated the odds of an August RBA rate rise of 25 basis points to 4.6% at about a one-in-four chance, according to the ASX rates tracker . Investors were fully pricing in one rate cut to 4.1% by next June.

Financial markets assessed the chance of another rate rise soon as unlikely, sending the Australian dollar diving about 0.4 US cents to 64.9 US cents immediately after the release. The stock market also perked up about half a percentage point, building on morning gains, to be almost 1.1% higher for the day.

The monthly CPI figure came in at an annual rate of 3.8%, down from 4% in May but higher than April’s 3.6%. The trimmed mean measure eased to 4.1% from 4.4% in May but in line with April’s reading, underscoring the choppiness of the data.

“The data reiterates our view that the interest rates are restrictive enough in Australia, and the next move by the RBA could very likely be a cut in November 2024,” said Krishna Bhimavarapu, APAC economist at State Street Global Advisors. “We think a rate hike at this stage is less likely and could tip the economy into a deeper downturn.”

David Bassanese, chief economist with Betashares, agreed, saying: “Those with a mortgage can breathe a sigh of relief, at least for now, though Australia retains a sticky inflation problem and interest rate increases at some stage this year can still not yet be confidently ruled out.”

While the risk of another RBA rate rise may have eased back a bit, households were still facing price pinches in many sectors.

Fruit and veg prices were up by 6.3%, the highest rate in any quarter since 2016, the ABS’s Michelle Marquardt said. Grapes, strawberries, blueberries, tomatoes and capsicums were among products facing “unfavourable growing conditions”.

Rents rose 2% for the quarter amid low vacancy rates just about everywhere, slightly down from 2.1% in the March quarter. June quarter rents were up 7.3% from a year earlier.

New home costs were 5.1% higher than a year earlier for those buying new residences.

Electricity prices were 6% higher than a year earlier, but the increase would have been 14.6% without government rebates. Gas prices eased 1.6% in the quarter, aided by winter support extended by the Victorian government.

The RBA will also pay attention to consumer activity in the economy, including June retail turnover that posted a 0.5% increase, seasonally adjusted, the ABS said in a separate release.

The increase compared with the 0.2% rise expected by economists. The pace was slightly down on May’s 0.6% but up on April’s 0.2% growth. From a year ago, they were up 2.9%, or less than the 3.8% inflation rate for June.

“End-of-financial year sales boosted spending in June by more than usual, particularly on discretionary items like furniture, electrical goods and clothing,” Ben Dorber, ABS head of retail statistics, said.