Q2 headline CPI printed in line with consensus and the RBA’s May forecasts at 1.0% q/q and 3.8% y/y, a pickup from Q1’s 3.6%. The trimmed mean printed below consensus at 0.8% q/q and 3.9% y/y down from 4.0%, which has driven a sharp sell off in the AUD and rally in ACGBs despite it being above the RBA’s expectation of 3.8%. Inflation remains elevated and progress slow, especially domestic inflation, but so the data are enough to make a rate hike unlikely but it is still too early to talk cuts any time soon. The RBA’s vigilance re “upside risks to inflation” is likely to be retained at the August 6 meeting.

Australia CPI y/y%

Source: MNI - Market News/Refinitiv

• Services inflation picked up to 4.5% y/y from 4.3%, due to rents and insurance, but market services eased to 4.1% from 4.3%, the lowest in two years. Non-tradeables rose 0.7% q/q to be steady at 5% y/y, but the lowest quarterly rate in three years. While domestically-driven inflation remains elevated, there are signs of cooling, which is what the RBA will want to see.

Sources: MNI - Market News/Refinitiv

• There was an expected pickup in tradeables inflation from seasonal trends and higher shipping costs. It rose 1.7% q/q to 1.5% y/y from 0.9% in Q1. Goods prices were also stronger rising 1.0% q/q and 3.2% y/y up from 3.1%.
• The 1% q/q rise in the CPI was driven by housing +1.1% q/q (rents +2% q/q & 7.3% y/y) and food & beverages +1.2% q/q, as weather impacted fruit & vegetables.
• The ABS notes that the Energy Bill Relief Fund rebate continued to be paid in Q2 and excluding this, electricity prices would have risen 14.6% y/y compared with the 6.0% recorded, which was up on Q1’s 2.0% y/y.
• June CPI rose 0.4% m/m easing to 3.8% y/y from 4.0%, still higher than the December 3.4% low, while trimmed mean moderated to 4.1% from 4.4%.