By I. Hansana, Jadetimes News
Australia's Inflation Rate Declines to 3.5% as Energy Costs Drop, But Economic Pressures Persist
Australia's inflation rate has dropped to 3.5% for the year to July, its lowest level since March, driven largely by a significant reduction in energy prices. According to the Australian Bureau of Statistics, consumer prices increased by 3.5% in the 12 months to July, down from 3.8% in June. This decline was primarily influenced by a 5% annual decrease in electricity prices, as billions of dollars in government rebates began to take effect.
While the inflation rate was slightly above the 3.4% anticipated by economists, it suggests that any potential interest rate cuts are still some months away. The Reserve Bank of Australia (RBA) is expected to maintain its cautious approach, as the inflation data indicates only a gradual easing of price pressures.
Food prices, particularly for fruits and vegetables, saw a sharp rise of 7.5% in the year to July, up from 3.6% in June. Alcohol prices also continued their upward trend, with a 3.7% annual increase compared to 3.4% in the previous month. These price hikes have prompted calls from the Australian Council of Trade Unions (ACTU) for major supermarkets to reduce prices, particularly in light of the significant profits posted by Coles and Woolworths.
Energy prices, on the other hand, have returned to levels seen a year ago, thanks to federal government rebates in Western Australia and Queensland, as well as additional state subsidies in Tasmania. Nationally, energy prices fell by 6.4% in July alone, with further declines expected as rebates extend to other regions.
Despite the overall reduction in inflation, the trimmed mean indicator, which excludes volatile items, fell to 3.8% in July from 4.1% in June. Another measure, excluding holiday spending, dropped to 3.7%, its lowest level since January 2022. While these figures suggest a broad-based slowing in price increases, the RBA remains cautious.
Treasurer Jim Chalmers highlighted the impact of government subsidies in curbing inflation, but economists like Stephen Wu from CBA noted that the disinflation trend was not solely due to these rebates. Rent increases slowed to 6.9%, dipping below 7% for the first time this year, while petrol prices fell by 2.6% in July, reducing their annual increase to 4.0%.
The RBA’s forecast anticipates inflation to ease further, potentially reaching 3.0% by December, with the trimmed mean expected to decline to 3.5%. However, despite the easing price pressures, RBA Governor Michele Bullock has warned that inflation is decreasing too slowly to justify an interest rate cut by year end.
The Australian dollar saw a boost, rising to US68c for the first time since January, as investors recognized the likelihood of interest rates remaining at their current 12 year high in the near term. Nonetheless, markets are still holding out hope for a rate cut in December.
David Robertson, chief economist at Bendigo Bank, suggested that while the recent inflation figures may alleviate concerns about a rate hike at the RBA’s September meeting, they are unlikely to prompt a rate cut in 2024. As the RBA continues to monitor economic data, upcoming retail spending figures, set to be released on Friday, will provide further insights into how Australians are coping with rising prices.
