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Consumer prices rose 0.8 per cent over the three months to June, making a 6 per cent increase over the past year.
Key points:
- Quarterly inflation slowed from 1.4pc in March to 0.8pc in June
- The annual rate of headline inflation is 6pc, down from 7.8pc in December
- Economists and financial traders now believe an RBA interest rate rise next week is unlikely
The latest Consumer Price Index (CPI) from the Australian Bureau of Statistics (ABS) is slightly lower than most economists were expecting and reduces the chances of a Reserve Bank interest rate rise next Tuesday.
The Reserve Bank's preferred measure of underlying inflation, which excludes the most volatile price changes, came in at 0.9 per cent for the quarter and 5.9 per cent over the 12 months to June.
The RBA targets an inflation rate of 2-3 per cent, with quarterly inflation now running at an annualised pace of 3.6 per cent on its preferred trimmed mean measure.
Sean Langcake from Oxford Economics said that, even though inflation remained above target, it was coming down more quickly than the Reserve Bank expected in its most recent forecasts.
"While there are still concerns around the labour cost outlook, we think these data will buy the RBA some more time and allow them to keep rates on hold a little longer," he argued.
Financial markets agree, with the odds of a rate hike in August dropping from just over 50 per cent to around 30 per cent, according to Refinitiv data.
Has the RBA already gone 'too far'?
Stephen Smith from Deloitte Access Economics went further, slamming the Reserve Bank, and much of the economics profession, for its response to the inflation spike.
"The inflation data released today is further evidence that the Reserve Bank has increased interest rates too far," he wrote in a note responding to the figures.
"Excessive inflation in Australia has mostly been caused by supply side factors, meaning that interest rate increases have mostly been ineffective at bringing inflation under control.
"Rather, inflation has fallen as a result of repairs to global supply chains and an easing of import prices.
"The Australian economy is softening dramatically, the pace of inflation has peaked and is moderating quickly, wage growth is not excessive and medium-term inflation expectations are not rising.
"In that context there should be no further interest rate increases in Australia."
In fact, he argued the further interest rate rises could even reinforce some of the current drivers of inflation.
"In those areas of the Australian economy that are still seeing strong price growth – namely housing and energy markets – supply side challenges are similarly to blame," he continued.
"Higher interest rates will not encourage a faster energy transition, nor unleash a wave of home building. Instead they will make these issues worse."
However, Marcel Thieliant from Capital Economics said he still believed the Reserve Bank should implement at least one more rate rise.
"The bank may well conclude that the battle against inflation has been won," he noted.
"However, we think that this would be a risky move given that the slowdown in inflation was driven by weaker goods inflation, which plunged from 7.6 per cent to 5.8 per cent.
"Services inflation, which the RBA believes is stickier, accelerated further from 6.1 per cent to 6.3 per cent, the highest it has been since the launch of the GST two decades ago."
The ABS said it was the first time since September 2021 that annual services inflation had been higher than goods price increases.
Although, on a quarterly basis, the June rise in services inflation of 0.8 per cent was lower than the 0.9 per cent rise in goods prices and the weakest rise in a year.
ANZ senior economist Adelaide Timbrell said that deceleration in domestically generated inflation seemed to indicate that the rate rises already implemented are doing their job.
"The sharp drops in headline and core CPI and in non-tradables and services inflation, the latter two both printing 0.8 per cent quarter-on-quarter in the second quarter, highlight that a 4.1 per cent cash rate may be restrictive enough to bring inflation down," she wrote.
"This is particularly the case given monetary policy operates with a considerable lag."
Rents rise at fastest pace since 1988
Businesses in the services sector are walking a tightrope between raising prices to recover their own surging costs and keeping customers who are looking to save money.
Lena Doueihi co-owns Sydney-based Maurice Dry Cleaners with her husband, whose father started the business in 1975.
She said their six remaining outlets have witnessed a jump in most of their operating costs.
"It's costing us between 25 to 30 per cent more to run our business on a weekly basis," Ms Doueihi told The Business.
"Number one wages — there's just been a wage increase. Along with the wages, of course, there's superannuation.
"Our energy bills have gone up over 30 per cent. Our gas bills have also gone up close to 30 per cent.
"I just got a letter in the mail the other day, our car insurance is going up 30 per cent.
"The plastic, the chemicals, the wire hangers, the plastic hangers, tissue paper, cleaning products, cleaning baskets, even just maintenance and repairs on our machines."
But the firm is taking much of it as a hit to profit margins, wary of customers tightening their belts who are already getting items cleaned less often.
"We have slightly increased the shirts and on a couple of our items but, overall, no, not really. We've tried to absorb as much cost as we can," Ms Doueihi said.
Falling prices for domestic travel and accommodation (-7.2 per cent), electricity (-1.8 per cent), clothing accessories (-2.2 per cent) and automotive fuel (-0.7 per cent) helped lower inflation over the quarter.
However, those price cuts were offset by rising rents (+2.5 per cent), international holiday travel and accommodation (+6.2 per cent), other financial services (+2.5 per cent), new dwellings purchased by owner-occupiers (+1.0 per cent) and food (+1.6 per cent).
The surge in asking rents seen over the past year or so has finally fed through to a jump in the official Australian Bureau of Statistics measure as more leases have rolled over.
"Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market," noted Michelle Marquardt, the ABS head of price statistics.
"Rental price growth for flats continued to outpace the growth for houses."
Canberra-based student Sam Thomas, 22, said they are on the brink of homelessness due to surging living costs.
"I receive about $672 a fortnight from Centrelink and I pay about $151 a week in rent, so that's about $302 a fortnight, so almost half," they said.
"I am now left just eating two meals a day. It's been literally years since I have bought myself new sets of clothes. I cannot afford to replace my laptop."