On the face of it, these numbers should take an August rate rise firmly off the table, as the market is now expecting.
Headline inflation came in a full percentage point below the RBA’s most recent forecasts from May, and underlying price rises were 0.2 per cent lower than expected.
So far so good.
But, after diving a little deeper into today’s June inflation numbers, there will be some things in there that still worry the Reserve Bank.
Non-tradables, that generally means services rather than goods, were the key driver of inflation.
Prices in this area rose 4.9% over the year to June, up from 4.7% in the year to May, and way up from the annual price increase of 2.9% a year ago when the RBA was in rate cutting mode.
This will worry the bank because these are domestic prices, reflecting local inflation pressures.
A particular area of concern is the rising cost of construction.
“Annual inflation for new dwellings has reached its highest level in almost three years, at 5.8 per cent. This was driven by builders passing on higher material and labour costs,” Rachael McCririck from the ABS notes.
However, one major household cost, which has been driving inflation, should start easing off in the new financial year.
“Electricity remains one of the biggest contributors to annual inflation, with costs 22.4 per cent higher than 12 months ago,” McCririck observes.
“This is largely because government rebates which reduced household electricity bills have ended.”
But the inflationary effect of those rebates ending will itself soon roll off, and many consumers will see lower bills as a result of reduced default market offer pricing, which in turn is the result of plunging wholesale electricity prices as renewables and batteries start taking over from more expensive coal and gas (see the earlier post from Yiying).
The reason overall annual inflation remained relatively steady last month was that tradables prices rose just 1.5% over the past year, a big drop-off from a peak of 4.5% in March, and offsetting the rise in non-tradables prices.
As you might be able to guess, plunging fuel costs from those March highs were a major contributor.
Obviously, with oil prices continuing to fluctuate and the federal government’s final 16 cents of excise reduction ending this Sunday, it’s more likely that fuel prices will again start adding to inflation on a monthly basis than subtracting from it.
In short, while the headline and overall core inflation numbers will be pleasing for the Reserve Bank, there’s still enough concerning detail in the figures to keep the monetary policy board on its toes and ready for another possible rate hike sometime this year.