Australian Inflation Eases, Offset by Rising Food and Alcohol Prices
Australia experienced a slight easing in annual inflation in July, primarily due to a fall in electricity prices driven by government rebates for consumers. However, this decrease was offset by rises in food, clothing, alcohol, non-alcoholic beverages, and gas. Housing prices also rose in July, albeit at a slower pace than in June.
According to the Australian Bureau of Statistics (ABS), the monthly Consumer Price Index (CPI) rose by 3.5 percent in the 12 months leading up to July 2024, down from 3.8 percent the previous month. Housing prices increased by 4 percent, food and non-alcoholic beverages increased by 3.8 percent, alcohol and tobacco surged by 7.2 percent, and transport rose by 3.4 percent year on year.
Leigh Merrington, the acting head of prices statistics at the ABS, noted that CPI inflation is often influenced by volatile price changes in items like automotive fuel, fruit and vegetables, and holiday travel. He emphasized the importance of excluding these items from the headline CPI to determine underlying inflation, which stood at 3.7 percent in July, down from 4.0 percent in June.
Electricity prices experienced a significant decline of 5.1 percent in the 12 months leading up to July, in stark contrast to the 7.5 percent rise witnessed in June. The ABS attributed this drop to new federal and state rebates, with Queensland and Western Australia being the first to benefit from the 2024-25 Commonwealth Energy Bill relief fund rebates. Other states and territories would follow suit from August. Additionally, state-specific rebates were introduced in Western Australia, Queensland, and Tasmania. Overall, these rebates led to a 6.4 percent fall in electricity prices in July. Excluding the rebates, prices would have risen by 0.9 percent.
Food and non-alcoholic beverages experienced a rise in annual inflation to 3.8 percent in July, up from 3.3 percent in June. The most significant increase was observed in fruit and vegetable prices, which rose by 7.5 percent in the 12 months leading up to July, compared to 3.6 percent in June. Strawberries, grapes, broccoli, and cucumbers were among the items that contributed to the highest prices seen since December 2022.
Housing inflation, which had previously been on an upward trajectory, slowed to 4 percent in the 12 months leading up to July, down from 5.5 percent in June. Rent inflation also decreased, reaching 6.9 percent for the year to July compared to a jump of 7.1 percent in the 12 months to June.
ANZ economists responded to the ABS data by stating that they do not believe it would impact the Reserve Bank of Australia’s (RBA) outlook on interest rates. They explained that since the data reflects the first month of the quarter, when a smaller portion of services and non-tradables have measured price changes compared to goods and tradables, the RBA is unlikely to be swayed.
ANZ economists Adam Boyton and Catherine Birch further noted that electricity prices were expected to fall significantly again in August as rebates are implemented nationwide.
Treasurer Jim Chalmers acknowledged the positive aspects of the inflation data, stating that monthly inflation is now at a four-month low, and trimmed mean inflation has reached a six-month low. However, he emphasized that there is still pressure on individuals and that the government is actively taking steps to address this issue. Chalmers outlined their economic plan, which focuses on tackling inflation and reducing the cost of living without harming an already fragile economy.
In contrast, Shadow Treasurer Angus Taylor expressed the Coalition’s desire for a permanent reduction in inflation. He highlighted the need to assist young Australians in accessing affordable housing and criticized the government’s immigration policy, which he believed exceeded the capacity of the housing stock. Taylor called for a return to basics in solving these problems.
Overall, while Australia experienced a slight easing in inflation due to lower electricity prices, the rise in food and alcohol prices offset this decline. Housing prices continue to increase, albeit at a slower pace, and the Reserve Bank of Australia is set to discuss its next interest rate move at an upcoming board meeting.
