Australia Core Inflation Slows in Q2, Easing Rate Hike Pressure

Key facts

• Australia's core inflation slowed in the June quarter, rising 0.8% and undershooting forecasts.
• Annual core inflation increased to 3.6% but fell short of market expectations.
• RBA Governor Michele Bullock remains uncertain if further rate hikes are needed to control inflation.
• A further slowdown in domestic demand and a cooling labor market may be necessary to meet the RBA's inflation target.
• Higher oil prices due to the Middle East conflict are expected to impact broader costs.

Australia's consumer price inflation slowed in the June quarter, with core inflation undershooting forecasts, potentially easing pressure on the Reserve Bank of Australia (RBA) to raise interest rates further. The Australian Bureau of Statistics reported that the key trimmed mean measure of core inflation rose 0.8% in the quarter, below market expectations, and the annual pace picked up to 3.6% but also fell short of forecasts.

RBA Governor Michele Bullock has expressed uncertainty about whether the current interest rate levels are sufficient to curb inflation, suggesting that a further slowdown in domestic demand and a cooling labor market might be necessary to bring inflation back within the RBA's 2%-3% target band. Despite the recent data, Bullock has indicated the RBA is prepared to raise rates again if required, a stance that has led markets to price in at least one more hike this year. Supply-side shocks, such as rising oil prices due to the Middle East conflict, are also a concern, with indications that businesses may pass on higher expenses to consumers.