Inflation data: Consumer price index climbs to 3 per cent

Australian home borrowers are expected to miss out on an interest rate cut next week, with inflation worsening.

Monthly indicator data for August showed the consumer price index growing by 3 per cent over the year.

The number is on the high side of the Reserve Bank’s 2 to 3 per cent target, making a rate cut on Tuesday next week unlikely.

The volatile monthly series from the Australian Bureau of Statistics had the CPI edging up from July’s 2.8 per cent figure, largely thanks to the end of generous State Government electricity rebates in Western Australia and Queensland.

Treasurer Jim Chalmers said the monthly headline inflation number was too volatile to worry about.

“Monthly inflation figures can be volatile and are less reliable than the quarterly figures because they don’t compare the same basket of goods and services from month to month,” he said.

Rate relief delayed

The bad headline inflation number means home borrowers won’t get relief until Melbourne Cup day on November 4, following the release of more comprehensive September quarter inflation data.

KPMG chief economist Brendan Rynne said the RBA was likely to wait until November before moving, with the latest CPI indicator number for August on the high side as a result of soaring electricity prices.

“The RBA is likely to sit tight. Some of the State rebates have finished,” he told The Nightly.

“The headline number’s sort of nonsense. At the moment, it’s difficult to understand because of the impact of the rebates on the headline CPI data. It’s a data point but it’s not as influential as the quarterly CPI data.”

Powerful data

Electricity prices surged by 24.6 per cent over the year, even though the Federal Government’s $75 quarterly rebates were extended to the end of 2025 in the pre-election March Budget.

Western Australia’s $400 annual rebates finished at the end of June while Queensland’s equivalent $1000 rebates also finished at the end of the last financial year.

“While headline inflation fell slightly in the month, the annual rate increased slightly to 3 per cent due to base effects and the ending of state energy rebates. This outcome was within the range the market expected,” Dr Chalmers said.

Food and non-alcoholic beverage prices rose by 3 per cent while tobacco prices went up by 12.6 per cent, even before the excise increase on September 1.

Rent costs rose by 3.7 per cent over the year, in a sign the housing crisis is far from over, but the Federal Government argued that would have gone up by 4.8 per cent without Commonwealth Rent Assistance.

Services inflation is still on the high side, with education costs rising by 5.5 per cent as insurance and financial services expenses went up by 3 per cent.

But some items hardly went up in price, with fruit and vegetable costs edging up by 1.1 per cent over the year while the cost of automotive fuel fell by 1.7 per cent with motorists typically paying less than $1.76 a litre for basic E10 unleaded.

Buried good news

With volatile price items excluded, underlying or trimmed mean inflation was at 2.6 per cent, and above the mid-point of the RBA’s 2 to 3 per cent target.

But the core number for August was below July’s 2.7 per cent level.

“Even with the monthly data, you can see that core inflation has gone down,” Dr Rynne said. “So, you’ve got to look at core which is what the RBA does anyway. It’s having a more important impact.”

Dr Chalmers noted underlying inflation, the Reserve Bank’s preferred measure, had been within the RBA’s target range for the ninth month in a row.

“Despite increased volatility in the global economy, underlying inflation is within the RBA’s target and that’s a promising result in uncertain times,” he said.