
Australian consumer price inflation fell in July, according to the ABS. Electricity subsidies contributed to the slowing, while broader price increases appear to be moderating more gradually. The RBA is unlikely to cut until a slowdown becomes more obvious.
According to the ABS monthly series released today, the Australian annual headline CPI change eased from +3.8% in June to +3.5% in July. Economists had expected a larger drop to +3.4% yoy.
Trimmed mean inflation eased from +4.1% yoy in June to +3.8% yoy last month.
Excluding volatile food, fuel and holiday travel prices, underlying inflation also dropped to +3.7%, down from +4.0%.
The most significant contributors to the annual rise were Housing (+4.0%), Food and non-alcoholic beverages (+3.8%), Alcohol and tobacco (+7.2%), and Transport (+3.4%).
Housing rose +4.0% in the 12 months to July, down from +5.5% in June. The lower increase in Housing for the year to July was primarily due to falls in prices for electricity. Electricity prices fell -5.1% in the 12 months to July, down from a rise of +7.5 in June. The introduction of new Commonwealth and State rebates drove the fall in July.
Leigh Merrington, ABS acting head of prices statistics, said: “The first instalments of the 2024-25 Commonwealth Energy Bill Relief Fund rebates began in Queensland and Western Australia from July 2024 with other States and Territories to follow from August. In addition, State-specific rebates were introduced in Western Australia, Queensland and Tasmania. 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".
Rents increased +6.9% for the year to July, down from a rise of +7.1% in the 12 months to June, reflecting continued tightness in the rental market in capital cities.
The annual rise in new dwelling prices has remained around +5.0% since August 2023, with builders passing on higher costs for labour and materials.
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The figures suggest that the government is likely to achieve the drop in CPI as hoped when all the subsidies announced with the Federal Budget take effect this month.
In addition, stable interest rates are likely contributing to a reduction in rent inflation, while somewhat restrictive policy also weighs on household budgets and appears to be reducing price pressures in discretionary sectors. So, there are good reasons to expect CPI inflation to continue to trend lower.
However, given that electricity prices will rise again when the subsidies end, the pace could be gradual. The RBA is not likely to ease until the global economy obviously begins to weaken, further dampening inflation pressures, or until Australian companies begin to layoff staff, resulting in higher unemployment. We expect both of these to occur at some point in the coming months.


