Fuel prices surged almost 15% in August post the federal excise tax cut, lifting Australia's headline inflation rate from 3.5% to 4%yr. However, that was slightly below the expected increase (4.1%), prompting a dovish repricing that saw the market-implied odds of a November rate hike fall to below 30% from around 40% after yesterday's rate rise (see here). Core inflation, coming off a strong increase in July (0.5%m/m), slowed to a 0.2% rise, holding the annual pace steady at 3.6%.
Headline CPI slowed from a 1%m/m rise in July to 0.4%m/m in August. Because that replaced a much weaker reading from August last year (-0.1%) in the annual calculation, headline CPI rose from 3.5% to 4%yr. The key factor driving the slowdown from July to August was a decline in holiday travel prices (-0.2%) after the peak period last month coinciding with school holidays. However, that effect was somewhat mitigated by the federal excise tax cut on fuel ending. Fuel prices increased by 14.8% in August following a 7.5% lift in July. As a result, the transport group saw prices rise 4.2%m/m. Outside fuel and holiday travel, price movements had relatively little impact on inflation.
Trimmed mean or underlying inflation also slowed coming in at 0.2%m/m after a strong July increase (0.5%). However, the annual pace still printed at an unchanged 3.6%, leaving it around 1ppt above the midpoint of the RBA's target band. Housing-related costs (5.7%Y/Y) have been the major contributor to that on the back of rises in new dwellings (5.4%) and rents (3.6%).
