Australian CPI inflation slowed to a 17-month low at 4.9% in July, firming expectations for the RBA to extend its hiking pause at next week's meeting. Australian inflation has fallen substantially from its 8.4% peak at the end of 2022 as global disinflationary impulses have gradually worked through to domestic prices, with today's report indicating this process has continued into the second half of the year.
In a downside surprise relative to market expectations, 12-month headline CPI fell from 5.4% in June to 4.9% in July, below the 5.2% consensus figure. The various gauges of underlying inflation were also softer compared to the prior month.
The disinflationary impulse is largely reflected in goods inflation falling from a peak of nearly 10% late last year to 4.4% in July. There was also some softening in services inflation (5.6%), but this will not convince the RBA of anything regarding a turn from elevated rates.
Price falls for fruit and vegetables (-5.4%) and fuel (-7.6%) have been driving factors behind declining inflation. Compared to 12 months ago, inflationary pressures have eased materially across home building (5.9%), household gas (13.9%), travel (5.3%), and clothing and footwear (1.5%) to name a few key areas. On the flip side, rents have continued to advance (7.6%) and electricity prices are up 15.7% from 12 months ago, with government rebates keeping an even larger increase of 19.2% at bay.
Encouragingly, the recent momentum points to further declines in inflation, though fuel prices have risen sharply in recent weeks. Headline CPI on both a 3-month (2%) and 6-month annualised basis (3.8%) in July was running well below the 4.9% 12-month rate.
