Inflation up a low 0.4% in June quarter leaving scope for RBA to cut rates on August 6

Larry SchlesingerDecember 7, 2020

Headline inflation increased by 0.4% in the June quarter, in line or just below economists’ forecasts to be up 2.4% through the year.

The modest increase leaves room for the RBA to cut the cash rate on August 6 should it deem it necessary.

The most significant price rises in the June quarter 2013 were for medical and hospital services (+3.4%), tobacco (+3.0%), new dwelling purchase by owner–occupiers (0.9%), furniture (+4.8%) and rents (+1.1%).The most significant offsetting price falls were for domestic holiday travel and accommodation (–4.0%) and automotive fuel (–3.1%).

The June rise follows the Consumer Price Index (CPI) rising 0.4% in the March quarter 2013, compared with a rise of 0.2% in the December quarter 2012.

ANZ had forecast headline CPI to be 0.4% quarter-on-quarter and up 2.4% on an annual basis.

NAB’s forecast was for a “soft result” of a 0.5% increase (2.5% through the year) largely reflecting seasonal weakness in a number of the CPI components, including housing, education and medical costs.

While the headline rate will act as a guide, economists and the RBA will look more closely at underlying inflation rate – computed differently by economists - which excludes components of CPI whose prices are directly influenced by highly volatile, seasonal or policy factors.

Economist Stephen Koukoulas computes underlying inflation at 2.4% through the year - well within the RBA's target band of 2% to 3%.

The Commonwealth Bank has underlying inflation up 2.5% through the year - up 0.5% for the quarter.

NAB forecast underlying inflation in the June quarter to be 0.6% (2.4% through the year), “a little stronger than the March quarter outcome but still well within the RBA’s comfort zone”.

“For the RBA, an outcome of 0.6% for underlying inflation would probably not stop the Board from easing in August, but any higher might cause them to wait.  On balance, we still expect an August rate cut,” said NAB chief economist Alan Oster.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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