This according to experts from CreditorWatch, Canstar, and RateCity.com.au
The latest inflation print came in “better than expected,” which according to experts from CreditorWatch, Canstar, and RateCity.com.au increased the likelihood of a cash rate pause in August.
According to the latest ABS data, inflation increased 0.8% in the June quarter and 6% annually. Despite the continued increase of inflation, the rate of growth has eased after a 7% annual increase in the March quarter and a 7.8% lift in the December 2022 quarter.
The biggest contributors to the rise in the June quarter were rents, up +2.5%, international holiday travel and accommodation (+6.2%), other financial services (+2.5%), and new dwellings purchased by owner occupiers (+1%).
Anneke Thompson (pictured above left), CreditorWatch chief economist, said the current inflation rate came in below market expectations, with particular progress made in the slowing rate of goods inflation.
“Goods inflation dropped from 7.6% over the year to March 2023 to 5.8% over the year to June,” Thompson said. “Goods inflation is far more responsive to monetary policy changes than services inflation, and this shows that consumers have well and truly responded to the RBA’s tightening measures.”
Underlying inflation or trimmed mean, which strips out more volatile price movements, also increased in the June 2023 quarter, up by 0.9% and 5.9% annually, a significant drop from 6.6% over the year to March.
“This result has reduced the chance of a further cash rate rise at the August meeting,” Thompson said. “It now seems that labour force data will become more crucial to the RBA’s decision-making. The board will be hoping to see some softening in unemployment rate, to reduce the chance of further pressure on wages.
Services inflation, meanwhile, is still increasing, and at 6.3% over the year to June is the highest rate since the introduction of the GST.
“Inflation in the services sector was largely driven by steep increases in the cost of insurance and rent,” Thompson said. “Further increases to the cash rate are going to have limited impact on price growth in these areas, and it is likely that the RBA board will take this into consideration at their meeting in August.
Effie Zahos (pictured above centre), Canstar editor-at-large and money expert, and Sally Tindall (pictured above right), RateCity.com.au research director, both agreed that there was now a bigger chance of a cash rate pause in August.
“The chance that the Reserve Bank may pause the cash rate again has just increased,” Zahos said. “Even though job numbers in June came in surprisingly strong, the unemployment rate is a lagging indicator. If the June retail sales, which come out on Friday, are flat then there is certainly less pressure for the Reserve Bank to hike the cash rate in August.”
“The slowing of Australia’s annual inflation rate for the second quarter in a row increases the likelihood of a second consecutive pause in the cash rate following next Tuesday’s board meeting,” Tindall said.
“The cash rate could well be at the peak, but no-one can say this with any degree of certainty just yet. There’s enough in this month’s data that potentially points to another hike in the months to come. Services inflation might have slowed between quarters, but it still posted the highest annual increase since 2001.
“On balance, a pause is shaping up to be the card the RBA is most likely to play this month.”
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