Inflation hits 3.8 per cent for June quarter, as Aussies wait anxiously for RBA rates call

Inflation has hit 3.8 per cent for the June quarter, but some economists say that figure has given the Reserve Bank room to keep rates on hold.

The chance of an interest rate hike next week is less likely following the latest inflation data which has made it easier for the Reserve Bank to keep the cash rate on hold.

But a cut in the rate will have to wait until next year at least and with one economist saying it “is some distance away”.

The consumer price index (CPI) rose by 1 per cent in the second quarter of 2024, bringing annual headline inflation to 3.8 per cent, above the March quarter figure of 3.6 per cent.

The ABS data puts inflation above the RBA target range of between 2 and 3 per cent, which it hopes to achieve by the end of 2025.

The RBA will consider the data when its board meets on Monday and Tuesday to discuss if the official cash rate should go up, down or stay on hold.

The data was welcomed by Treasurer Jim Chalmers as showing that inflation was moderating, with headline inflation “precisely what the Reserve Bank forecast”.

Inflation is still sticky and stubborn across our economy, and more persistent than we would like, but the June quarter is the sixth consecutive quarter of lower annual trimmed mean inflation in Australia. #auspol #ausecon

— Jim Chalmers MP (@JEChalmers) July 31, 2024

Deloitte Access Economics partner Stephen Smith said the CPI numbers “should put to rest the tired notion that the RBA should lift rates, an act that would do nothing but tempt a recession”.

“Australian mortgage holders and businesses should breathe a sigh of relief as the case for a rate rise should now dissipate,” he said.

“What we have seen today is confirmation that inflation and inflationary expectations are not running rampant.”

Business Council of Australia chief executive Bran Black said while rising and persistent inflation is a “serious concern”, Wednesday’s figures are “mostly in line with RBA forecasts and that hopefully provides some breathing space for businesses and homeowners”.

Bendigo Bank said the figures showed a rate cut was “still some distance away”, but “the recent speculation of a possible RBA rate hike next week remains very unlikely”.

“Today’s data aligns with our opinion that restrictive interest rates are helping to moderate inflation, but the frustratingly slow pace of moderation means the RBA may not be in a position to cut rates until May 2025,” Bendigo chief economist David Robertson said.

BDO Economics partner Anders Magnusson said his firm’s prediction was not altered by the inflation data.

“Today’s release has not changed our forecast that the next movement by the RBA will be a rate cut in early 2025.”

The more volatile monthly inflation data from July did worry some people, but Mr Magnusson said those worries were unnecessary.

Oxford Economics Australia head of macroeconomic forecasting, Sean Langcake, said other than housing, core inflation pressures were gradually subsiding.

While the August RBA decision was “finely poised”, Oxford Economics expects the central bank to keep rates on hold.

CommBank is sticking with its call for the RBA to start cutting the cash rate in November.

CBA does not consider next week’s RBA meeting to be ‘live’, and expects the cash rate to remain at 4.35 per cent.

Reserve Bank Governor Michele Bullock will lead a hotly anticipated central bank meeting next week. Picture: NewsWire / Martin Ollman

“Inflation is still too high,” the bank says in general analysis published on Wednesday.

“And the job of returning inflation to the 2-3 per cent target band is not yet done. But the glide path towards inflation returning to the target band is intact.

“Our central bank will take comfort that the disinflation trend observed in other jurisdictions is at work in Australia.”

In the CPI data released on Wednesday, the ABS flags clothing and footwear (up 3.1 per cent), alcohol and tobacco (up 1.5 per cent) and housing’s 1.1 per cent price rises as the most significant increases across the economy in the past three months.

“Prices for fruit rose strongly this quarter,” the ABS notes.

Grapes, strawberries, blueberries, tomatoes and capsicums were in particular hit by poor growing conditions.

Annual food inflation eased to 3.3 per cent in the June quarter, down from 3.8 per cent in March quarter and the peak of 9.2 per cent in December 2022.

Lamb and beef prices are down, but pork and seafood rose.

However, annual food inflation has actually eased for the sixth quarter in a row.

The headline 3.8 per cent inflation number is an annual figure, and the first increase in annual inflation since the December 2022 quarter.

Speaking immediately after the CPI numbers came out, Treasurer Jim Chalmers said the inflation figures sat within the RBA’s predictions.

“I don’t pre-empt decisions made by the Reserve Bank, they will consider these numbers today but not just these numbers, they will consider the broader conditions in the economy as well.

“Headline inflation is precisely what the Reserve Bank forecast, up to the June quarter. Underlying inflation is moderating,” he said.

“They will weigh all that up along with the weakness that we have seen in the economy, the softening around the edges of the labour market.

“They will factor in conditions in the sector and all the rest of it.”

Treasurer Jim Chalmers says the inflation figures sit within the RBA’s predictions. Picture: NewsWire / Glenn Campbell

EToro market analyst Josh Gilbert said there was no smoking gun in the data which called for an interest rate hike.

“There will be a collective sigh of relief from the RBA at Martin Place today, with today’s CPI readings likely giving the board the freedom to leave rates on hold,” Mr Gilbert said.

“This was the most critical data point the RBA had received all year, and it came in better than feared … We can now shift the focus away from another hike and instead look towards that first cut,” he said.

“Early market pricing suggests that the first cut could appear as soon as February next year.”

But consumers are being slugged across the board. Only the cost of communication services fell this quarter.

Comparing now with this time last year, health services cost 5.7 per cent more, insurance and financial services have risen 6.4 per cent, and housing is up 5.2 per cent.

Rents have risen 7.3 per cent over 12 months.

That sharp rise has been tempered by changes to Commonwealth Rent Assistance.

“Excluding these changes to CRA, rents would have increased by 9.1 per cent over the 12 months,” the ABS notes.

The Reserve Bank meets next week to make a decision on the cash rate; the central bank consistently holds up the “trimmed mean” inflation figure as a good indicator of whether the economy is heating up.

The trimmed mean lops off the top and bottom 15 per cent to show a steadier underlying inflation rate.

Trimmed mean annual inflation fell slightly to 3.9 per cent, down from 4.0 per cent in the March quarter, Wednesday’s data shows.

Shadow treasurer Angus Taylor took aim at the government, calling the inflation data “a terrible set of figures’.

“This is Labor’s homegrown inflation inflicting pain on every Australian household,” Mr Taylor said.

“Non-tradeable inflation – that’s the domestic inflation – is running at 5 per cent and tradeable at only 1.5 per cent and it is very clear here that this is Labor’s homegrown inflation.”

Annual food inflation has eased for the sixth quarter in a row. Picture: NewsWire / David Crosling

The federal government’s tax cuts and cost of living relief measures brought in on July 1 will not be an issue in the June quarter figures.

Following the June meeting of the RBA board, governor Michele Bullock, said the central bank was “vigilant” in watching for proof inflation was not receding fast enough.

When the board meets next week, it may well decide hiking interest rates is needed to ensure inflation retreats.

The cash rate has held at 4.35 per cent since the last hike in November.

The rate hasn’t been this high since December 2011.

Originally published as Inflation hits 3.8 per cent for June quarter, as Aussies wait anxiously for RBA rates call