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Australia’s consumer price inflation for the second quarter of this year slightly beat market expectations, confirming that inflationary pressures are building only very gradually. From a policy perspective, the Q2 data supports the case that the Reserve Bank of Australia (RBA) is a long way from policy tightening.
Headline CPI rose 0.4 percent q/q, a little below expectations of 0.5 percent q/q. This was still sufficient to push annual inflation higher, to 2.1 percent y/y from 1.9 percent y/y in the first quarter. As expected, petrol prices contributed 0.2 ppt of the rise.
Both the trimmed mean and weighted median rose by 0.5 percent q/q, in line with expectations, leaving annual core inflation running a touch below the central bank’s target band. Looking in more detail, the average of the two measures rose 0.46% q/q, a step-down from 0.54% in Q1. CPI ex volatiles (seasonally adjusted) rose 0.47 percent q/q. In annual terms, core inflation decelerated a touch, to 1.9 percent y/y, from (an upwardly revised) 2.0 percent y/y in Q1.
Further, tradable prices were boosted by the 6.9 percent rise in petrol prices in Q1, excluding volatiles and tobacco tradable prices, seasonally adjusted, fell by 0.5 percent q/q, down 2.6 percent y/y. Retail competition is still impacting, with prices lower over the year for clothing & footwear (-2.0 percent), furniture & furnishings (-2.1 percent) and household appliances (-1.6 percent).
"In our view, inflation will rise only very gradually, with sufficient progress toward the mid-point of the policy target band unlikely to emerge until H2 2019. Higher inflation will require a lift in wage growth feeding through to domestic services prices. Focus will now turn to the Q2 Wage price Index on August 15," ANZ Research commented in its latest report.
