Key facts
- Australian inflation fell to 3.8% year-on-year in June.
- The Reserve Bank of Australia is expected to hold interest rates steady at its August 11 meeting.
- Underlying inflation pressures eased more than economists predicted.
- Falling fuel prices, down 10.9% in June, contributed to the lower headline inflation rate.
- Homebuilding costs rose 5.8% due to increased material and labor expenses.
- Service sector price pressures are still elevated, suggesting ongoing domestic inflation.
Australian mortgage holders have been spared an immediate interest rate hike, as inflation unexpectedly eased to 3.8% in the year to June, down from 4%. The Australian Bureau of Statistics' consumer price report was a key focus ahead of the Reserve Bank of Australia's (RBA) August 11 rate decision.
The RBA's preferred measure of underlying price pressures rose 0.8% in the June quarter, lifting the annual pace to 3.6%, which was below the RBA's forecast of 3.8%. This easing has led independent economist Chris Richardson to declare that a "bullet" has been dodged, indicating that the RBA's previous rate hikes are beginning to curb inflation.
Falling global oil prices, influenced by a stabilization in the Middle East in June, contributed to a 10.9% drop in Australian fuel prices for the month. However, domestic inflationary pressures persist, with homebuilding costs climbing at their fastest pace in three years, up 5.8%, due to higher material and labor expenses. Stephen Smith of Deloitte Access Economics noted that while the report offers relief, red flags remain, particularly concerning price pressures in the service economy that are not directly linked to international conflicts.