AUSTRALIA DATA: Underlying Inflation Pressures Ease, Services Inflation Elevated

Headline CPI fell in August to 2.7% y/y from 3.5%, as expected, but as the RBA said in its September statement it is currently impacted by temporary factors. It should be reassured though by the moderation in the underlying measures but the drop in services inflation was limited and it remains elevated. Governor Bullock said yesterday that services are the “crux of the matter”.

• The RBA still prefers the quarterly CPI data as it has more complete coverage. Q3 is published on October 30. Despite this, AUDUSD dropped on the August data to 0.6882 from 0.6897 and is currently trading around 0.6890.
• Trimmed mean inflation moderated to 3.4% from 3.8% y/y, its lowest since February 2022.
• CPI excluding volatile items & holiday travel moderated to the top of the band at 3% down from 3.7%, base effects were favourable. It fell 0.1% m/m, seasonally adjusted, but that was the first monthly fall since February 2021.
• The important domestically- driven services component, which included few updates in July, eased only 0.2pp to 4.2% y/y and is still above March’s 3.9%. Goods prices moderated to 1.4% y/y from 2.8%.
• Headline CPI fell 0.1% m/m, seasonally adjusted, to be 2.7% y/y, within the band. A 1.1% y/y decline in transport partially offset housing (+2.6%), food (+3.4%) and alcohol & tobacco (+6.6%).
• Energy drove the decline in headline inflation with fuel down 7.6% y/y and state and federal government rebates drove a 17.9% y/y decline in electricity prices, the largest on record. The rebates themselves resulted in a 14.6% y/y drop in electricity and the ABS calculates that without them it would have risen 0.1% y/y.

Australia CPI y/y%