RBA Gets Breathing Room as June Inflation Data Shows Stability

The latest inflation data from Australia shows a surprising stability in underlying inflation rates, which may give the Reserve Bank of Australia (RBA) some breathing room ahead of its next interest rate decision. The Consumer Price Index (CPI) rose 3.8% for the 12 months to June, down from 4% in May, with the trimmed mean, a measure of underlying inflation, remaining unchanged at 3.6%. This development is expected to influence the RBA's cash rate decision on August 11, where markets currently price in a 22% chance of another rate hike.

The largest contributor to annual inflation was housing, up 4.8%, largely due to rising electricity prices, which are 22.4% higher than 12 months ago. Food and recreation costs also contributed significantly to inflation, with food prices increasing by 3.3%. The government's halved fuel excise has masked the true pressure of inflation in recent months.

RBA governor Michele Bullock warned that the longer inflation remains out of target, the more concerned the board becomes, and it is prepared to hike interest rates higher if needed. Deloitte Access Economics partner Stephen Smith cautions that 'price pressures in the service economy that are not necessarily linked to the Middle East conflict have picked up,' suggesting that home-grown inflationary pressures remain.