Article Posted date 31 July 2024
4 min read

RBA rate rise and CPI figures

The RBA will take cold comfort from today’s inflation data, in which, excluding volatile components, the CPI ticked down a fraction. The 3.8 percent increase in the headline number is not high enough to force the RBA’s hand to raise rates in next week’s meeting, but the pause in the downward trend, with headline inflation for both goods and services ticking up, will keep the RBA on full alert.

With key components of the CPI still persistently high, and continued uncertainty about how government cost of living measures and tax cuts will impact inflation over the second half of the year, there is little doubt that the next RBA board meeting will still be testing. KPMG’s central view continues to be that the RBA will not need to raise rates further, although we recognise the risks are to the upside on interest rates and that the it may take a little longer to get inflation back within the RBA’s target zone.

Detail
  • Today’s CPI release shows inflation accelerated to 3.8 percent in the June quarter 2024 from 3.6 percent in the March quarter 2024. While this is the first increase in annual inflation since the December 2022 quarter, it remains consistent with the consensus.
  • The trimmed mean measure which excludes volatile items fell slightly from 4.0 percent y/y last quarter to 3.9 percent y/y and is lower than the expectation of 4.0 percent y/y. 
  • Both goods and services annual inflation ticked up this quarter. Prices continued to rise for goods such as tobacco, new dwellings and automotive fuel, while prices for fruit rose strongly this quarter. Annual services inflation continued to be impacted by higher prices for rents and insurance. 
  • The largest contributors to inflation over the quarter were Housing (+1.1 percent), and Food and non-alcoholic beverages (+1.2 percent).
  • Rental price growth remains high but down to 7.3 percent over the 12 months from 7.8 percent in the previous quarter. Annual price growth for new dwellings across Australia held steady at 5.1 percent in the June quarter. However, there were significant variations among capital cities. Sydney and Melbourne experienced more moderate growth at 3.5 percent, while Perth and Adelaide saw substantial increases of 18.1 percent and 7.4 percent, respectively.
  • The introduction of the Energy Bill Relief Fund rebates from July 2023 has moderated the increase in electricity bills for households. Electricity prices increased 6 percent in the past 12 months. Excluding the Energy Bill Relief Fund rebates, prices would have increased by 14.6 percent over this period.
  • Insurance prices continued to record strong growth, increasing by 14.0 percent in the 12 months to the June quarter but eased from the 16.4 percent in the March quarter.
  • Annual food inflation eased to 3.3 percent in the June quarter, down from 3.8 percent in March quarter. Price rises were lower across most food categories, except for fruit and vegetable.

CPI rose 1.0% in the June 2024 quarter | Australian Bureau of Statistics (abs.gov.au)

EOFY sales mask weakness in retail volumes

  • Retail trade in June 2024 rose by 0.5 percent, following rises in May and April, as end-of-financial-year sales boosted spending by more than usual. The trend estimate, with seasonal and one-off factors stripped out, also ticked up by 0.4 percent over the month, the strongest monthly uplift since October 2022.
  • But it should be noted that price increases have driven this growth in nominal retail trade in the past 3 months, with retail volumes falling by 0.3 percent in the June quarter, following a drop of 0.4 percent in the March quarter.
  • This drop in volumes, coupled with strong dependence on EOFY sales, indicates consumers are more cautious about their budget and potentially try to take advantage of price reductions as much as possible, bringing forward their future spending. Essentially, the growth in retail turnover revealed by today’s data masks the underlying weakness in volumes. The latest consumer sentiment data shows confidence is still deeply pessimistic. These pieces of evidence continue to paint an uncertain picture for household consumption, although the wealth effect of continued growth in house values may be providing a cushion.

Detail

  • Turnover rose in most non-food related industries in the month of June, led by household goods retailing (+1.1%), department stores (+1%), other retailing (+1%), and clothing, footwear and personal accessory retailing (+0.7%) as spending on discretionary goods rose.
  • Food-related spending was mixed, with an increase in food retailing (+0.2%) and no change in cafes, restaurants and takeaway food services.
  • Retail turnover growth rose across most states, except for Tasmania which saw retail turnover flatline. Western Australia and the ACT saw the largest rise of 0.9 percent, followed by the Northern Territory (+0.8%). 

For further information

Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au