Consumer Price Index — Q2 | By the numbers
- Headline inflation lifted by 0.61% in Q1 to outpace the market forecast for a 0.5% rise (prior 0.0%).
- Over the year, headline inflation increased from 1.33% to 1.59%, which was stronger than the 1.5% pace anticipated by markets.
- Underlying inflation, averaging the trimmed mean and weighted median measures, increased as expected by 0.4% in Q2 (prior revised: 0.23%), while the annual pace eased from 1.51% to 1.42% but was higher than the 1.35% pace anticipated.
- Trimmed mean inflation, the RBA's key measure, lifted by 0.42% in the June quarter (exp 0.4%, prior revised 0.3%), while the annual pace softened a fraction from 1.64% to 1.61% but met the market's forecast for 1.6%.
- Weighted median inflation posted a 0.37% rise in Q2 (exp 0.4%, prior revised 0.15%), though the annual pace eased from 1.37% to 1.24% (exp 1.2%).
As was anticipated, today's report confirmed that the headline CPI figure rebounded in Q2 due to higher petrol prices. Automotive fuel (part of the transport group) accounted for more than half (0.33ppt) of the quarterly rise in the CPI of 0.6%.
The next highest contribution came from the health group (+0.12ppt), largely reflecting the impact of annual increases in private health insurance premiums that occured at the start of the quarter.
Alcohol and tobacco added a combined 0.09ppt to the quarterly CPI figure, though that was almost entirely driven by tobacco (+0.08ppt) from excise increases.
It was a better quarter as far as retail prices go, with clothing and footwear (+0.06ppt) and furnishings, household equipment (+0.06ppt) reversing declines from Q1. Household services contributed a modest 0.1ppt, due entirely to increases from child care costs.
The main weights on inflation were from housing (-0.05ppt), which mainly reflected declines in utility costs, while rents added 0.1ppt to be offset by a 0.1ppt fall from new dwelling purchase costs, and from food and non-alcoholic beverages (-0.08ppt) that reflected declines in fruit and vegetable prices, notwithstanding the impact from drought conditions.
The next chart shows the percentage changes in price levels for each of the categories in the quarter and over the year.
Tradables inflation (prices determined by global factors) lifted by 1.2% in the June quarter, indicating some pass-through from a weaker domestic currency, which more than offset declines of 0.3% in Q4 and 0.6% in Q1, and accelerated the annual pace from 0.4% to 1.1%. Inflation from non-tradable sources (reflecting domestic factors) lifted by 0.3% in Q2, which saw the annual pace holding at 1.8%.
Consumer Price Index — Q2 | Insights
Today's report was a touch stronger than had been anticipated for headline inflation in the June quarter, though that was due largely to the impact from higher petrol prices. Overall, pricing pressures across the Australian economy remain subdued. The trimmed mean outcome of 1.61% over the year is in line with the RBA's forecast from its May quarterly statement, so it is possible that the Bank will remain with its call for a return to the 2% lower band (currently forecast for mid-2020) in August's statement (due out on the 9/8). However, it is still highly likely that the Board will cut the cash rate again by year's end given that the national unemployment rate has been drifting higher in 2019. Markets are fully priced for a 25 basis point rate cut by October.