The inflation crisis continues to display mixed outputs, though results seemingly show that the Australian economy is heading in the right direction.
With the most recent data on CPI, headline inflation was revealed to have increased from 3.6% to 3.8% (March - June quarter). Despite the worrying nature of these numbers, the more important measure of ‘trimmed mean’ inflation fell slightly from an annual rate of 4% to 3.9%. With the RBA’s main focus being this measure, given it still sits considerably higher than the 2-3% target range, expectations are that the next movement by the RBA will be a rate cut in early 2025. However, what is reassuring is that the prospects of a rate hike amidst ongoing cost of living pressures continue to ease. Upon analysing the drivers behind these movements, annual food inflation was showing to have eased from 3.8% (March) to 3.3% (June). Nonetheless, rental prices continue to demonstrate strong growth (annual rate of 7.3%), reflecting low vacancy rates and a tight rental market. Further, insurance prices have also experienced immense growth, rising by 14% over the last 12 months. Moreover, as the Australian election continues to inch closer, Treasurer Jim Chalmers has offered his own comments too, with the main sentiment being how Fiscal Policy aims to fight inflation without ‘crunching the economy’ amidst weak demand. Whether by correlation or causation, Dr Chalmers also attributed the cost of living relief to ‘directly taking pressure off inflation’.
Nevertheless, inflation continues to run above Treasury forecasts, casting a shadow over government forecasts for a 2.7% inflation rate by year end. In fact, the overall price level across the economy will have risen by more than 20% than it was before inflation burst above the RBA’s target range. Yet, Lucy Ellis, a former RBA assistant governor has placed expectations of a November rate cut. This is supported by the need to account for Monetary Policy’s time lag, as Ellis reckons that inflation data has demonstrated sufficient ‘disinflation’ for a rate cut to be introduced.
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