By James Glynn
SYDNEY–Inflation in Australia cooled by more than expected in the second quarter, easing pressure on the Reserve Bank of Australia to raise interest rates further at its next policy meeting, but there are hot spots in the price data that will likely keep the central bank anxious.
Consumer prices climbed 0.8% in the second quarter from the first quarter, and rose by 6.0% from a year ago, the Australian Bureau of Statistics said Wednesday. The inflation rate stood at 7.0% on year in the first quarter.
Economists had expected consumer prices to rise by 1.0% over the quarter and by 6.2% over the year. The outcomes are a little better than that implied by the RBA’s forecasts.
The quarterly inflation rate was the lowest since October 2021, the ABS said.
Trimmed mean inflation, a key factor in shaping the central bank’s decisions, rose 0.9% over the quarter and 5.9% from a year earlier.
While prices of most goods and services continued to rise in the second quarter, there were some offsetting falls, including for domestic holiday travel accommodation and automotive fuel, the ABS added.
The main contributors to the rise in the second quarter were rents, which jumped 2.5%, and international holiday travel & accommodation, which rose 6.2%, the ABS said.
Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market. Rental-price growth for flats continued to outpace that of houses, the data showed.
Higher demand for international travel, particularly to Europe with the start of the peak summer season there, led to price increases. These were partially offset by price declines for travel to Southeast Asia and New Zealand, the ABS added.
Meanwhile, prices for domestic holiday travel & accommodation eased by 7.2%, while electricity costs dropped 1.8%, the ABS said.
Annual inflation for services, a key area of focus for the RBA, rose to 6.3%, up from 6.1% in the first quarter and reaching the highest level since 2001.
Price increases for a range of services like rents, restaurant meals, child-care and insurance are keeping inflation high, the ABS said.
The cooling inflation could be enough for the RBA to keep the official cash rate on hold at 4.1% for a second month in a row at its policy meeting on Tuesday.
The RBA has signaled recently that further rate increases will be data dependent, with employment figures and the latest retail sales reports also key in the policy-making board’s decision.
Households are now devoting a record amount of their income to mortgage repayments, and confidence has slumped to its lowest level since a severe recession stalled the economy in the early 1990s.
With many households moving from ultra-low fixed-rate mortgage repayments to sharply higher variable-rate repayments, the impact of interest-rate increases on the suburbs continues to grow.
Write to James Glynn at [email protected]
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