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CBA Economist Harry Ottley today published a note on the July Consumer Price Inflation (CPI) indicator. Below is an overview of the analysis.

Key takeaways:

  • Headline inflation rose to 2.8 per cent year-on-year in July, well above market expectations of 2.3 per cent.
  • Trimmed mean inflation climbed to 2.7 per cent, now in line with the quarterly CPI.
  • Electricity and travel costs contributed around 55 basis points to the miss compared to our expectation of a 2.0 per year-on-year lift.

Australia’s monthly inflation indicator jumped in July, with headline consumer price index (CPI) rising to 2.8 per cent year-on-year, a much stronger result than expected. 

The surprise spike was driven by the timing of electricity rebates with NSW and the ACT receiving them in August rather than July, and seasonal travel costs, both of which are expected to shift in coming months.

The trimmed mean, which excludes volatile price movements, also rose to 2.7 per cent, matching the quarterly CPI and reinforcing the strength of the July figures.

“This was a stronger result than we and the market had anticipated,” CBA Economist Harry Ottley said.

“However, much of the surge can be explained by quirks in the timing of electricity rebates and holiday travel. These are unlikely to persist.”

Food and housing mixed, durable goods benign

Food inflation was softer than expected, rising just 0.1 per cent in the month, but some sub-categories remain elevated.a

Tea and coffee prices are up 14.5 per cent year-on-year, the second-highest rate of any product in the CPI basket.

Housing costs rose 1.9 per cent in July, driven by electricity. New dwelling prices ticked up 0.4 per cent, while rents rose 0.3 per cent, bringing the annual rate down slightly to 3.9 per cent.

Durable household goods, flagged by the Reserve Bank of Australia (RBA) as a concern earlier this year, rose just 0.4 per cent in July and remain benign at 0.9 per cent annually.

RBA likely to clarify July CPI volatility using August data

The RBA will receive the August CPI indicator before its next meeting, which will help clarify whether July’s spike was a one-off.

Analysts expect trimmed mean inflation to rise 0.6 per cent in the quarter and headline CPI to lift 0.7 per cent.

“The RBA has previously cautioned against overreacting to monthly CPI volatility, and today’s data is unlikely to shift its cautious, data-dependent stance,” Mr Ottley said.

“A 25bp rate cut in November remains the most likely next move,” he added.

To read Harry Ottley's full report, see here.

Go to CBA Newsroom for the latest news and announcements from Commonwealth Bank.

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  • The information presented is an extract of a Global Economic and Markets Research (GEMR) Economic Insights report. GEMR is a business unit of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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