By Shane Wright and Millie Muroi
A sharp fall in electricity prices due to the early stages of government-funded subsidies and cheaper petrol has helped push the nation’s inflation rate down to 3.5 per cent.
The Australian Bureau of Statistics’ monthly measure of inflation showed overall prices were flat in July. It also revealed an easing in rents and signs that domestic-led price pressures are coming under control.
The annual rate eased 0.3 percentage points from 3.8 per cent in June, which itself was down from 4 per cent in May.
And in positive news for the Reserve Bank, underlying inflation has started to ease while the rate of increase in prices on goods is now at its lowest level in three years.
Housing costs were up 4 per cent in the 12 months to July, down from 5.5 per cent in June. Rents were up by 6.9 per cent over the year, a step down from the 7.1 per cent annual rate recorded in June.
The biggest drop was for electricity prices which had climbed in the year to June by 7.5 per cent. In June, power prices fell by 6.4 per cent, taking the annual rate down to minus 5.1 per cent.
It’s the lowest electricity inflation rate since October 2021 with analysts expecting it to fall even further.
The bureau’s acting head of prices statistics, Leigh Merrington, said the various federal, West Australian and Queensland rebates for electricity started flowing in July with more to affect the inflation figures in August.
“Altogether these rebates led to a 6.4 per cent fall in the month of July. Excluding the rebates, electricity prices would have risen 0.9 per cent in July,” Merrington said.
While electricity prices are falling, gas prices are climbing. They lifted by 5.7 per cent in July as gas companies re-set their annual contracts. Over the past 12 months, gas prices increased by 2.7 per cent.
Petrol prices fell by 2.6 per cent last month, taking the annual rate down to 4 per cent. Since July, international and wholesale prices have fallen further while the Australian dollar has strengthened, suggesting petrol inflation will ease again in August.
Tobacco prices, which are affected by government excise rates, have climbed by 13.9 per cent over the past 12 months.
Prices for dairy products, which in early 2023 were climbing at almost 16 per cent, continued to ease with the annual inflation rate for milk, ice cream and cheeses now minus 0.2 per cent.
However, poor growing conditions for key fruit and vegetables flowed through to supermarkets with the annual inflation rate jumping from 3.6 per cent to 7.5 per cent.
In a sign of how global factors are affecting some prices, inflation for tradeable goods lifted to 1.5 per cent. But non-tradeable inflation eased to 4.5 per cent from 5 per cent, its lowest rate since February 2022.
Inflation excluding volatile items and holiday travel also eased, falling to 3.7 per cent from 4 per cent and is now at its lowest level since the start of 2022.
Capital Economics’ Abhijit Surya said the easing in the underlying measure of inflation suggest it will be within the Reserve Bank’s target band by year’s end.
“However, given the still-tight labour market and the positive output gap, we’re sticking to our view that the RBA will err on the side of caution and refrain from cutting rates before the first half of next year,” he said.
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