Australia’s Inflation Rises Slightly to 3.8%

Australia is facing a slight uptick in its inflation rate, which has climbed to 3.8% from 3.6% at the beginning of the year. According to the Australian Bureau of Statistics (ABS), prices increased by 1% in the June quarter, following the same pattern in the March quarter.

This upward movement in headline inflation marks the first increase since the end of 2022, but economists were not taken by surprise. They had anticipated this rise in prices.

Interestingly, the ‘trimmed mean’ measure of core inflation, which the Reserve Bank of Australia (RBA) closely monitors, saw a slight decrease. It dropped from 4% to 3.9% annually, showing that certain underlying price pressures are easing.

The RBA aims for the trimmed mean to fall into the 2% to 3% range and has noted a continuous decline in this measure over the past six quarters.

Economists like Andes Magnusson from BDO Economics commented on the situation, suggesting that though inflation remains persistent, it’s still within the bounds of what the RBA predicted. This could mean a rate cut in early 2025 rather than an increase.

The RBA Board is set to meet next week to discuss interest rates, currently standing at a target cash rate of 4.35%. Many financial analysts are optimistic that a rate hike is unlikely given these inflation figures.

Following the announcement, the Australian dollar dipped immediately, reflecting market expectations for no rate increase. Treasurer Jim Chalmers expressed that today’s numbers align with the RBA’s forecasts and that inflation trends in Australia have been slower to rise than in many comparable countries.

Despite the easing in core inflation, the ABS noted that some prices remain high. Rental prices, for example, went up by 7.3% over the past year, reflecting a tight rental market.

The ABS also highlighted that changes to the Commonwealth Rent Assistance (CRA) helped moderate rental price growth. Without these adjustments, rents could have increased by 9.1% in the same timeframe.

Food prices are another area of concern, with fruit and vegetable prices rising by a hefty 6.3%. Grapes, strawberries, and tomatoes have faced unfavorable growing conditions, contributing to this spike.

Meanwhile, the RBA will consider other economic indicators, including a 0.5% rise in retail turnover for June. This suggests that end-of-financial year sales provided a boost to consumer spending, particularly in discretionary items.