| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - Y/Y | 5.2% | 4.9% | 5.4% |
Highlights
Monthly CPI data show that headline inflation fell from 5.4 percent in June to 4.9 percent in July, below the consensus forecast of 5.2 percent. This remains well above the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent, but inflation has now declined in six of the last seven months and is now at its lowest level since January 2022. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.
This fall in inflation is consistent with the RBA's assessment that price pressures are moderating in response to policy tightening put in place since May 2022. The RBA has left policy on hold at its last two meetings and today's data will likely support the case for another pause at its meeting next week.
The measure of inflation that excludes volatile items and holiday travel shows underlying price pressures also moderated in July, falling to 5.8 percent from 6.1 percent in June. Food price inflation slowed from 7.0 percent to 5.6 percent, fuel prices fell 7.6 percent on the year, and housing and communications also recorded smaller year-over-year increases. Price increases, however, were steady in other categories, while clothing prices rose after falling previously.
Energy prices remain a significant factor driving inflation. Electricity prices rose 15.7 percent on the year and 6.0 percent on the month, despite government rebates to many households. Without those rebates, officials advise that electricity prices would have risen 19.2 percent on the month This is likely to have a significant impact on consumer spending in the near-term.
This fall in inflation is consistent with the RBA's assessment that price pressures are moderating in response to policy tightening put in place since May 2022. The RBA has left policy on hold at its last two meetings and today's data will likely support the case for another pause at its meeting next week.
The measure of inflation that excludes volatile items and holiday travel shows underlying price pressures also moderated in July, falling to 5.8 percent from 6.1 percent in June. Food price inflation slowed from 7.0 percent to 5.6 percent, fuel prices fell 7.6 percent on the year, and housing and communications also recorded smaller year-over-year increases. Price increases, however, were steady in other categories, while clothing prices rose after falling previously.
Energy prices remain a significant factor driving inflation. Electricity prices rose 15.7 percent on the year and 6.0 percent on the month, despite government rebates to many households. Without those rebates, officials advise that electricity prices would have risen 19.2 percent on the month This is likely to have a significant impact on consumer spending in the near-term.
Market Consensus Before Announcement
Consumer prices in July are expected to ease to 5.2 versus 5.4 percent in June which was down from 5.6 percent in May. The CPI has cooled in five of the last six months.
Definition
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
