Inflation in Australia has experienced a larger-than-expected cooldown in the second quarter, providing some relief for the Reserve Bank of Australia (RBA) regarding the need for further interest rate hikes during its upcoming policy meeting. However, certain areas within the price data remain concerning and are likely to keep the central bank on edge.
According to the Australian Bureau of Statistics, consumer prices increased by 0.8% in Q2 compared to Q1, with a year-on-year rise of 6.0%. By comparison, the inflation rate in Q1 stood at 7.0% on an annual basis.
Economists had anticipated a 1.0% quarterly increase and a 6.2% yearly rise in consumer prices. Despite this, the reported outcomes prove slightly better than what was predicted according to RBA’s forecasts.
This marks the lowest quarterly inflation rate since October 2021, as highlighted by the ABS.
The trimmed mean inflation, which significantly influences the central bank’s decision-making process, exhibited a 0.9% growth throughout the quarter and a 5.9% increase from the previous year.
While the prices of most goods and services continued to rise during Q2, there were mitigating declines observed for domestic holiday travel & accommodation and automotive fuel, as stated by the ABS.
Key contributors to the overall increase in Q2 were rents, which surged by 2.5%, and international holiday travel & accommodation, registering a 6.2% rise, as indicated by the ABS.
Notably, rents experienced their most substantial quarterly growth since 1988, reflecting an exceedingly tight rental market with low vacancy rates. The data further reveals that rental-price growth for flats has been surpassing that of houses.
International Travel Prices Increase as Summer Season Begins
With the start of the peak summer season in Europe, there has been a higher demand for international travel. As a result, prices for these flights have increased. However, the Australian Bureau of Statistics (ABS) also noted that prices for travel to Southeast Asia and New Zealand have declined, partially offsetting the overall increase.
On the other hand, prices for domestic holiday travel and accommodation have eased by 7.2%. Additionally, electricity costs have dropped by 1.8%, as reported by the ABS.
Services Inflation Reaches Highest Level Since 2001
Services inflation, which is a key area of focus for the Reserve Bank of Australia (RBA), has risen to 6.3%. This percentage is an increase from 6.1% in the first quarter and marks the highest level since 2001.
The ABS states that price increases in various services such as rents, restaurant meals, child-care, and insurance have contributed to this high level of inflation.
Cooling Inflation Could Impact Cash Rate
The recent cooling inflation may influence the RBA’s decision on the official cash rate. With a potential second month of keeping it at 4.1%, the RBA is closely monitoring the data. Employment figures and the latest retail sales reports will also play a significant role in their policy-making board’s decision.
Currently, households are dedicating a record amount of their income to mortgage repayments, leading to a decrease in confidence levels. This drop in confidence is the lowest since the severe recession of the early 1990s.
As households transition from ultra-low fixed-rate mortgage repayments to higher variable-rate repayments, the impact of interest-rate increases on suburban areas continues to grow.