Inflation climbed 1 per cent in the June quarter and 3.8 per cent annually, according to the latest Australian Bureau of Statistics (ABS) data, with experts conflicted on whether this will mean an interest rate rise.
The June quarter rise was the same as what was recorded in the March quarter.
“The annual rise of 3.8 per cent for the June quarter is up from 3.6 per cent in the March quarter,” ABS Head of Prices Statistics Michelle Marquardt said.
“This is the first increase in annual CPI inflation since the December 2022 quarter.”
The biggest contributors to the June quarter rise include housing (up 1.1 per cent) and food and non alcoholic beverages (up 1.2 per cent).
The quarterly growth in housing was driven by rents (up 2 per cent) and new homes purchased by owner-occupiers (up 1.1 per cent).
“The continuing tight rental market and low vacancy rates caused rental prices to go up 2 per cent for the quarter, following a 2.1 per cent rise in the March 2024 quarter,” Ms Marquardt said.
Higher labour and material costs drove the 1.1 per cent quarterly rise for the construction of new dwellings, which followed an increase of 1.1 per cent the previous quarter as well.
The climb in food and non-alcoholic beverages was driven by fruit and vegetables (up 6.3 per cent), meals out and takeaway food (up 0.6 per cent) and meat and seafood (up 1.3 per cent).
“Fruit and vegetable prices rose this quarter as unfavourable growing conditions drove higher prices for grapes, strawberries, blueberries, tomatoes and capsicums,” Ms Marquardt said.
“This was the highest quarterly rise for fruit and vegetables since 2016.”
Experts are conflicted on whether the rise in inflation will mean the Reserve Bank of Australia (RBA) lifts interest rates on August 6.
Canstar Group Executive, Financial Services, Steve Mickenbecker, said the RBA’s target band of inflation between 2 and 3 per cent looked a long way off.
“The increase of the annual inflation rate from 3.6 per cent for the March quarter to 3.8 per cent for June is bad enough, but the lack of progress on a quarterly basis is particularly disturbing,” he said.
“After the promising 0.6 per cent inflation rate for the December 2023 quarter, we have now had two quarters at 1 per cent.
“The Reserve Bank target band is looking a long way off and another quarter with a 1 per cent rise will almost demand another cash rate increase.
‘At that rate we’re tracking towards 4 per cent annual inflation by the end of the year.’
Mr Mickenbecker said the RBA would weigh up the risk of losing control of the inflation agenda and allowing inflation expectations to become entrenched against raising rates now and slowing the economy to the point of major job losses.
“Another 0.25 percent rate increase now will cost a borrower around $100 extra per month on their $600,000 loan, piling further pain on borrowers amidst indications that many are very much struggling under the weight of higher repayments,” he said.
RateCity.com.au Research Director, Sally Tindall, said the inflation news was not good, but it was broadly expected.
She said it was likely the RBA would still keep interest rates on hold.
“Australia’s annual inflation rate is now officially tracking in the wrong direction,” she said.
“At 3.8 per cent, there is a long, and most likely bumpy, road ahead of us to get it back down to 2.5 per cent.
“Over the last few meetings, the RBA has been deploying a ‘wait-and-see’ strategy to see if it can ride out this current blip in inflation without having to fire off a 14th rate hike.
“Luckily, this result still fits within the RBA’s timeline to return inflation back to target by mid-2026, buying it more time to continue with its current plan.
“However, the clock is ticking for the RBA. If Australia’s inflation rate doesn’t start coming back down soon, or worse still, continues in the wrong direction, the Board will have to act.”
Ms Tindall said she expected the RBA would not “rule anything in or out” at the end of its meeting next Tuesday.
“It’s not just the RBA that’s been given a reprieve, borrowers across the country now have more time on their side to prepare for a potential rate hike, should one eventuate,” she said.
