Consumers price index

Slight inflation pick-up won’t stop interest rate cut

16 Jul 2019
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Andrew Beattie

Our take on the latest Consumers price index (Tue 16 Jul 2019)

Inflation rose to 1.7%pa in June
Non-tradable inflation steady at 2.8%pa
Petrol prices up 5.8% in the June quarter

The key numbers...

  • Inflation was as expected from the Reserve Bank’s point of view, allowing the Bank to maintain its accommodative monetary stance, so we expect a further cut to the official cash rate next month.
  • Some of last quarter’s inflation was caused by a jump in crude oil prices due to tensions between Iran and the US, disrupting trade routes and sanctions on Iran’s production – factors the Reserve Bank will look through.
  • Higher inflation for non-tradables and services suggests that increasing domestic cost pressures associated with the tight labour market and other input costs are starting to flow through into consumer price outcomes, albeit very slowly.

CPI components

Annual % changes
3289

...and our reaction

  • Headline inflation lifted from 1.5% to 1.7%pa, matching the Reserve Bank’s forecast and average market expectations.
  • Tradable prices bounced back from a 0.4%pa decline in the March quarter to record a 0.1%pa increase in the June quarter.
  • Services and non-tradables are where prices are rising the most, up 2.5%pa and 2.8%pa respectively. Meanwhile, goods inflation edged up from 0.9%pa last quarter to 1.2%pa in the June quarter.
  • Significant quarterly price movements included petrol (up 5.8% after a 7.0% fall last quarter), cigarettes and tobacco (up 7.7% as excise tax hikes continue), domestic airfares (down 13%), and fruit and vegetables (down 4.8%).

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