Core Inflation Lower, Need More Data To Ascertain Trend

July headline CPI inflation moderated to 3.5% y/y from 3.8%, slightly higher than expected, driven by lower electricity prices from government subsidies. The trimmed mean moderated to 3.8% from 4.1%, lowest since January, and ex volatile items to 3.7% from 4.0%, but few services components are updated in the first month of the quarter. The RBA is likely to look through July and wait for August and especially Q3 data.

• The ABS said that electricity prices fell 5.1% y/y after rising 7.5% y/y in June due to government rebates resulting in a 6.4% m/m drop. Excluding relief, electricity inflation would have been +0.9% y/y. Federal subsidies were first rolled out in Queensland and WA in July and the rest of the country will receive them in August, thus this month’s headline CPI will be impacted too. WA, Queensland and Tasmania also received state relief.
• Goods inflation rose 2.8% y/y in July down from 3.4%, while tradeables picked up 0.2pp to 1.5%. The latter appeared to trough in December 2023.
• Services inflation increased 0.1pp to 4.4% y/y but non-tradeables eased 0.5pp to 4.5%.
• In terms of housing, there was a slight moderation in rents to 6.9% y/y from 7.1% and builders continue to pass on higher labour and material costs for new builds.
• The pickup in fruit & vegetable prices added to food inflation, which rose 0.5pp to 3.8% y/y.

Source: MNI - Market News/ABS