July CPI Data Unlikely To Impact RBA Thinking

July CPI data released today are likely to be difficult to determine if there has been a change in trend. Thus they are unlikely to impact the RBA’s thinking unless the underlying measures print significantly different from June.

• Bloomberg consensus is expecting headline to moderate to 3.4% y/y from 3.8%. The drop is expected to be driven by lower food inflation and an outright fall in petrol prices, as well as government cost-of-living measures. The trimmed mean will be the focus for the next year though and it printed at 4.1% in June, there isn’t a consensus forecast.
• The RBA prefers the quarterly data as it is comprehensive and the monthly series does not include updates for all components each month. The first month of the quarter, ie. July, doesn’t include updates for most services components, the sector that the Board is most concerned about.
• The RBA has said it will look through the impact of government cost-of-living relief measures on the CPI. They came into effect on July 1 and will impact headline CPI, especially the household energy rebate, which is reflected in the RBA’s Q4 2024 forecast of 3% and rebound to 3.7% in Q4 2025.
• Thus the focus is on the underlying trimmed mean, which is only released as the annual percent change in the monthly print. The other core index is CPI ex volatile items and holiday travel. It was steady at 4.0% y/y in June and rose 0.3% m/m seasonally adjusted. Favourable base effects should help a moderation in July.
• The consensus outcome requires headline CPI to fall on the month, which is possible given lower fuel prices and the energy rebate.