The RBA has said that the battle to control inflation is not yet over, and the latest data from the ABS, the monthly CPI report for July came out today and confirms that inflation does remain a problem. The monthly Consumer Price Index (CPI) indicator rose 3.5 per cent in the 12 months to July 2024, down from 3.8 per cent in June. The annual trimmed mean movement was 3.8% in July, down from 4.1% in June. But still well above the target range.
The monthly indicator is not as reliable. It covers only about 60 to 70 per cent of household items in the quarterly basket of goods and services. Moreover, the composition of measured items jumps around between being more heavily skewed towards goods in some months and more towards services in other months, making it harder to get an “apples with apples” comparison on prices.
The accumulated price increases in the past 3 years or so remain much higher than Income growth, so as my surveys show, many households are under significant financial pressure. A slowing in the rate of growth frankly is largely symbolic, we are not seeing much price deflation at all.
The extended and expanded Commonwealth Energy Bill Relief Fund rebate, and the introduction of State government rebates, have begun to take affect from July 2024. These rebates have the effect of reducing electricity costs for households, but of course the RBA is looking through this short-term support when assessing monetary policy. The rate-setting board left the benchmark at a 12-year high of 4.35% three weeks ago, saying it remains vigilant to upside risks for inflation.
With the data unlikely to sway the Reserve Bank from its hawkish stance, the yield on policy sensitive three-year notes climbed to 3.54% while the local currency rose as much as 0.3% to erase its year-to-date loss against the greenback. Money markets are still pricing in a rate cut in December.
Broader federal and state government spending has forced the RBA to delay by six months the expected return to inflation to the midpoint of the 2-3 per cent target to late 2026. Hence, governor Michele Bullock doesn’t expect to be cutting interest rates this year.
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