Article 1 of 2 Shoppers walk past sale signs in the window of a retail store at a shopping mall in Sydney, Australia, September 4, 2018. Picture taken September 4, 2018. REUTERS/David Gray/File Photo
SYDNEY, Aug 28 (Reuters) – Australian inflation fell to a four-month low in July as government electricity price rebates took effect, but progress in curbing price increases in other countries was disappointing and led markets to scale back the possibility of a near-term rate cut.
The consumer price index (CPI) rose 3.5 percent year-on-year in July, from 3.8 percent in June, according to data from the Australian Bureau of Statistics on Wednesday.
The figure was slightly above forecasts of 3.4%, prompting markets to slightly raise the probability of a first monetary easing by the Reserve Bank of Australia in November to 48.4% from 58%.
The Australian dollar rose 0.1% to $0.6803, about its highest level this year, and the three-year bond yield rose 4 points to 3.559%.
On a monthly basis, the Consumer Price Index (CPI) remained unchanged in July from June, as electricity prices fell 6.4 percent and gasoline prices fell 2.6 percent, but rents and food and gas prices rose.
“The July inflation numbers are full of bling. At first glance, it appears that the fight against inflation has taken a huge step forward … but part of that improvement is due to rebates that have artificially lowered electricity costs,” said Harry Murphy Cruise, economist at Moody’s Analytics.
“This makes the inflation rate look significantly better, but ultimately prices remain unchanged.”
In fact, the slowdown in headline inflation was due to federal and state government electricity subsidies that were introduced in Queensland and Western Australia last month and are expected to follow in other states and territories from August, the statistics agency said.
The company estimates that electricity prices would have risen by 0.9 percent in July without the discounts.
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The RBA has raised interest rates by 425 basis points to 4.35% since May 2022 in an effort to contain inflation, but the slow decline in underlying inflation, which is not expected to return to target until late 2025, has led policymakers to rule out a rate cut in the near term.
The July report – which is heavily weighted towards the goods sector in the first month of the quarter – showed that the closely watched core inflation index, the trimmed mean, slowed to 3.8% on an annual basis from 4.1% in June.
The consumer price index (CPI) excluding volatile items and holiday travel fell to 3.7%, the lowest since early 2022, from 4.0% previously.
Tapas Strickland, head of market economics at the National Australia Bank, said the July report showed there was no major further progress in disinflation in the goods sector.
“Unfortunately, today’s edition does not really provide any insight into the services side of the economy, so it does not provide a comprehensive overview. However, at least on the goods side of the economy, it does suggest that not much progress is being made.”
In fact, goods inflation remained unchanged this month.
Markets are still pricing in a rate cut this year, in part because the Federal Reserve is almost certain to begin easing policy next month and further rate cuts are expected in Canada, Europe and New Zealand.
A strong Australian dollar, oscillating near its annual high, should also help reduce imported inflation.
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Reporting by Wayne Cole and Stella Qiu; Editing by Jamie Freed and Jacqueline Wong
Our standards: The Thomson Reuters Trust Principles.
