June quarter inflation data reduces risk of rate risk
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The June quarter inflation data is likely to see the RBA keep rates on hold next week, economists predicted.
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The Consumer Price Index (CPI) rose 1 per cent in the June 2024 quarter and 3.8 per cent annually, according to the latest data from the Australian Bureau of Statistics.
“The annual rise of 3.8 per cent for the June quarter is up from 3.6 per cent in the March quarter,” said ABS head of prices statistics, Michelle Marquardt.
BDO Economics partner Anders Magnusson said while yesterday’s CPI data is as sticky as expected, it is no higher than the RBA expected.
“This is good news as the RBA tries to keep a lid on inflation without losing the gains made by workers through a strong labour market,” said Magnusson.
BDO said it maintains its previous forecast that the next movement by the RBA will be a rate cut in early 2025.
“We don’t believe that the RBA will raise the cash rate next week, but the ongoing cost-of-living struggles for many Australians will likely continue until early next year. In particular, inflation in housing is persistent,” said Magnusson.
BDO said a lot of recent “noisy monthly inflation releases” have caused unnecessary worry.
“Globally, countries like the US, Canada, and other European countries have experienced these scares but have eventually moved to lower interest rates,” said Magnusson.
“I expect that we are experiencing a lagged impact of what other countries have already experienced.”
Deloitte Access Economics partner, Stephen Smith said the June quarter CPI data should put to rest the notice that the RBA should lift rates, an act would do nothing but “tempt a recession”.
“Australian mortgage holders and businesses should breathe a sigh of relief as the case for a rate rise should now dissipate,” said Smith.
“If anyone has any doubts about inflation’s downward trend, today’s figures show that annual core inflation has fallen for its sixth consecutive quarter and has reached its lowest rate in two years.”
Smith noted that the factors driving Australian inflation at the moment cannot be fixed through interest rate hikes.
The main factors contributing to the increase were rents due to housing supply constraints, fruit and other food prices due to weather conditions and insurance premiums.
“Higher rates only fight inflation on the demand side, by subduing spending. Australia’s economy is already weak with investment and consumption in the economy too low, and with business insolvencies escalating,” said Smith.
“One thing is clear, the Australian economy is not overheating.”
Smith said lifting rates would fail to bring inflation to target any quicker and would only serve to damage the economy by erasing the benefits of the Stage 3 tax cuts.
Commenting on the latest CPI data, Treasurer Jim Chalmers noted that Australia’s headline inflation peaked lower and later than many comparable economies, while core inflation has moderated faster than the US, Canada and the Euro area.
“We’ve seen around the world that inflation can zig and zag on the way down – and, because Australia’s inflation peaked lower and later than in many countries, we’re seeing that trend here now,” said Chalmers.
01 August 2024 Miranda Brownlee accountingtimes.com.au
Louise is a CPA with a Masters in Professional Accounting and a diploma of Financial Planning. Louise has been in Public Practice for 21 years and has been the principal of LMC since 2012. With a focus on small business support services and self-managed super funds, Louise is passionate about helping small businesses achieve their potential through good cashflow management and strategies for success. Louise and her family enjoy the space and tranquility of the Noosa hinterland with a small acreage block complete with dogs, chickens, geese, ducks and donkeys!
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