The unexpectedly low, key underlying inflation figures of yesterday have been well reported. The implication is that the RBA will be justified in continuing their rate pause status. Their forecast for this measure in their last Quarterly Monetary Policy Statement was 2.75%. The measure came in on track at 2.70%. In their July Board Minutes, the RBA said that a rate rise in August was possible if “new information materially changed the medium-term outlook for inflation”. This hasn’t happened.
Consequently bill futures rallied about 15 points after the figure.
The figures were:
Both the underlying rates of inflation (the trimmed mean and the weighted median) rose by 0.5% in Q2, (better than the consensus 0.8%) for an annual increase of 2.7%, down from the 3.0% pace in Q1. This was the weakest quarterly outcome for the underlying rates since December 2006.
The headline CPI rose 0.6% in Q2, with the annual pace rising slightly to 3.1%yoy from 2.9%yoy in Q1. Among the big price increases in the June quarter were tobacco (+15.4%), hospital and medical services (+3.8%) and automotive fuel (+2.1%). Some offset came from domestic holiday travel and accommodation (-6.0%), fruit (-4.8%), audio, visual and computing equipment (-6.3%) and vegetables (-3.0%)
Inflationary pressures could increase towards the end of this year, principally as a result of our strong terms of trade, and expectations amongst economists for a rate hike around November are high.
