Summary: Annual Inflation rate hits 3.7% in June quarter, just above market expectations; RBA preferred measure rises to 1.6%, in line with expected figure; transport costs (fuel) main driver of result.
In the early 1990s, high rates of inflation in Australia were reined in by the “recession we had to have” as it became known. Since then, underlying consumer price inflation has averaged around 2.4%, a little below the midpoint of the RBA’s target range. Following the GFC, various measures of consumer inflation have been in a down-trend despite attempts by the RBA to increase them through historically low cash rates.
Consumer price indices for the June quarter have now been released by the ABS and the seasonally-adjusted inflation rate posted a 0.8% rise. The increase was just above the generally expected figure of 0.7% and higher than March’s comparable figure of 0.6%. On a 12-month basis, the seasonally-adjusted rate increased from 0.9% after revisions in March to 3.7%, with the 1.9% fall in the June 2020 quarter providing a significantly lower base for calculations.
The RBA’s preferred measure of underlying inflation, the “trimmed mean”, increased by 0.5% over the quarter, in line with market expectations and slightly higher than the March quarter’s 0.4%. The 12-month growth rate rose from 1.1% to 1.6%.
Commonwealth Government bond yields fell on the day, outpacing movements of their US Treasury counterparts overnight. By the close of business, the 3-year ACGB yield had lost 2bps to 0.28% while10-year and 20-year ACGB yield had each shed 6bps to 1.15% and 1.78% respectively.
In the cash futures market, expectations of a change in the actual cash rate, currently at 0.03%, remained largely unchanged. At the end of the day, contract prices implied the cash rate would inch up to around 0.21% by November 2022.
The main driver of the headline inflation figure in the quarter was a 2.8% rise in transport prices, contributing 0.3 percentage points of the 0.8% (unadjusted) increase over the quarter. The Food, Housing, Furnishings and Health segments all had roughly the same influence on the quarter; each contributed around 0.1% percentage points to the quarterly total, increasing 0.5%, 0.3%, 1.1%, 1.5% and 2.8% respectively.