Introduction to Australian Inflation Report
The recent Q2 CPI inflation report from the Australian Bureau of Statistics (ABS) has been analyzed by Justin Fabo from Antipodean Macro and Alex Joiner from IFM Investors. Their superb sets of charts indicate that both headline CPI and trimmed mean CPI have fallen within the Reserve Bank of Australia’s (RBA) target band of 2% to 3%, which could lead to a 25 bp rate cut at the next RBA monetary policy meeting.
Current Inflation Rates
According to Alex Joiner, the current headline CPI is 2.1%, while the trimmed mean CPI is 2.7%. Both measures of underlying inflation, the trimmed mean and weighted median, have printed at 2.7%. This suggests that the inflation rate is within the RBA’s target range, which could have implications for future monetary policy decisions.
Monthly Trimmed Mean Inflation
Justin Fabo’s analysis shows that the monthly trimmed mean inflation has fallen to just 2.1%. This is a significant decrease and could indicate a further decline in inflation rates. The policy-relevant trimmed mean inflation of 2.7% is also tracking in line with the RBA’s forecast, which suggests that the RBA’s policies are having the desired effect on inflation.
Broader Measures of Inflation
Broader measures of inflation, such as the NAB business survey, have also shown disinflation. This suggests that the decline in inflation is not limited to the CPI, but is a broader trend in the economy. The breadth of inflation has also fallen, with around 44% of the 87 CPI categories recording price rises above 2.5%, which is the midpoint of the RBA’s target range.
Impact of Housing on Inflation
Housing, which is one of the largest components of the CPI, has turned from being a key driver of inflation to a key detractor. The contribution of housing to inflation has decreased significantly, with rent inflation falling partly due to subsidies. New dwelling prices have also collapsed, which has helped to pull trimmed mean inflation lower.
Future Implications
While the decline in housing inflation has helped to lower trimmed mean inflation, Justin Fabo warns that this source of disinflation may not be sustained. Housing inflation has ticked higher in Q2, and Fabo notes that a lot of the disinflation in CPI rents has already occurred. Additionally, the pick-up in residential building approvals and new house sales may suggest that new dwelling purchase inflation will start to pick up from here.
Conclusion
In conclusion, the recent Q2 CPI inflation report suggests that a 25 bp rate cut at the next RBA monetary policy meeting is likely. However, further rate cuts will depend on how the data evolves. The decline in inflation rates, particularly in the housing sector, is a positive sign, but it is uncertain whether this trend will continue. As such, the RBA will need to carefully consider the data and make informed decisions about future monetary policy.
