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Australia’s Consumer Price Index (CPI) rose 0.5% in the June quarter 2014, following a rise of 0.6% in the March quarter 2014.

Inflation rose 3.0% through the year to June, up from 2.9%.

The Australian Bureau of Statistics said, “The most significant price rises this quarter were for medical and hospital services (+4.6%), new dwelling purchase by owner-occupiers (+1.6%) and tobacco (+3.1%). These rises were partially offset by falls in domestic holiday travel and accommodation (-3.8%), automotive fuel (-2.7%) and telecommunication equipment and services (-1.6%).”

The market was expecting year-on-year headline inflation would hit 3% with pundits expecting a quarterly print of 0.5%.

Even though inflation is at the top of the band, economists at NAB expect this to be the peak in the cycle and even noted in their Australian Markets weekly on Monday that:

While a +0.6% or lower inflation outcome would not be a trigger for a RBA rate cut it would validate current market pricing which now puts a 60% probability on the RBA cutting 25bps by the end of 2014. This current market pricing aligns with where NAB sees risks for RBA policy ahead – most likely on hold at 2½% for a long time but the risk is they may still need to cut again.

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