Mixed Inflation Information Likely To Keep RBA “Vigilant”

In June, the RBA repeated that it needs to “remain vigilant to upside risks to inflation”. While Q2 CPI printed close to its May forecasts, other inflation indicators were mixed since the June 18 meeting. Thus, we do not expect the Board to change its tone regarding inflation risks and to maintain its flexibility by “not ruling anything in or out” today.

• Q2 headline CPI increased 3.8% y/y up from 3.6%, while the trimmed mean moderated to 3.9% from 4.0%. Domestically-driven services rose 0.2pp to 4.5% y/y but core moderated 0.2pp to 4.1%. Monthly June inflation remained elevated but key measures moderated.
• The Melbourne Institute inflation gauge for July fell to 2.8% y/y from 3.2% and is now inside the 2-3% band for the first time since December 2021. Trimmed mean eased to 2.9% from 3.4%. Inflation expectations though remain above 4% and at 4.3% in July are above May’s 4.1%.
• SEEK June advertised salaries remained elevated at 4.3% y/y but down from 2023’s 4.9% peak. The minimum wage rose 3.75% on July 1 significantly less than last year but labour costs remain cited in business surveys as adding to overall cost pressures. Strong Q2 hours worked also signal that productivity growth was likely weak.

Source: MNI - Market News/SEEK

• Surveys have also been mixed with the June NAB business survey showing a moderation in price/cost components except retail prices, but there had been a significant pick up in the 3-month rate in May.

Source: MNI - Market News/Refinitiv

• The July Judo Bank services PMI noted that selling prices picked up to their highest rate in almost a year due to increased wage, material and transport costs. Manufacturing costs also rose but weak demand meant that output inflation was unchanged. Global container rates rose strongly in July but are lower in August to date.
• Q2 PPI remained robust rising 1.0% q/q bringing the annual rate to 4.8% y/y from 4.3%. Import prices rose 1% q/q to be up 1.1% y/y after three negative quarters.