Australia's Q2 Inflation Comes in Below Forecast Ahead of RBA's August 11 Meeting

Australia's second-quarter inflation data came in slightly below market expectations, according to figures released by the Australian Bureau of Statistics (ABS) on Wednesday, ahead of the Reserve Bank of Australia's policy meeting scheduled for August 11.

Key data

1. Annual CPI rose 4.0% year over year, below the 4.1% consensus forecast and down from 4.1% in the previous quarter.
2. Quarterly CPI increased 0.6%, below the expected 0.7% and slower than the 1.4% recorded in Q1.
3. Trimmed mean CPI, the RBA's preferred core inflation measure, increased 3.6% year over year, below the 3.7% forecast and prior reading.
4. Quarterly trimmed mean inflation rose 0.8%, matching the previous quarter but below the 0.9% market expectation.

Inflation drivers

Housing costs remained the largest contributor to inflation, rising 6.8% from a year earlier, reflecting higher electricity prices following the expiry of government rebates and continued increases in new dwelling costs.

Food, non-alcoholic beverages, and recreation also contributed to price growth, while transport inflation eased as lower global oil prices and fuel excise relief reduced fuel costs.

Policy context

Before the data release, market pricing indicated that investors were assessing the likelihood of further policy tightening at the RBA's August meeting and later this year.

RBA Governor Michele Bullock said earlier this week that the central bank remains prepared to tighten policy further if inflation proves persistent, while continuing to assess the effects of previous rate increases.

The RBA's cash rate currently stands at 4.35%.

For Southeast Asian market participants

The latest inflation figures may influence market expectations ahead of the RBA's August 11 policy meeting. With core inflation still above the RBA's 2%–3% target range, future policy decisions are expected to remain data dependent.

Sources: Australian Bureau of Statistics, Reuters, FXStreet.