Why The RBA Won't Be Feeling Pressure To Raise Rates, Despite The Pop In Australian Inflation

Matt Cardy / Stringer

The June quarter inflation report for Australia is out and while the headline all groups CPI rose 0.5% as expected to take the year on year rate to 3% it was the pop in the the trimmed mean, which rose 0.8%, which has caught the market’s eye and driven the Aussie dollar half a cent higher.

The trimmed mean is one of the other two measures of inflation that the Bureau of Statistics releases each quarter the other being the weighted median. These two measures are supposed to be less volatile than the headline which is why the market has latched onto the increase in the trimmed mean and driven the Aussie dollar higher.

In terms of the drivers of inflation in Australia at the moment medical and hospital services rose a very large 4.6% while new dwelling purchases were up 1.6% and tobacco costs 3.1% higher.

Offsetting the rises were falls in domestic travel and accommodation of 3.8%, automotive fuel of 2.7% and telco services of 1.6%.

This break up suggests Australians should feel a little wealthier.

Thinking about the impact on the RBA it is important to remember that the RBA does not have a rote adherence to increasing or decreasing rates at either end of its 2-3% band and equally that, as ANZ senior economist Riki Polygenis noted after the release that, ‘the key drivers of inflation are evolving and were consistent with a moderate inflation outlook going forward”.

“At this stage, we retain our view that the RBA will remain on hold until Q1 2015, with risks tilted towards a later start or a more protracted tightening cycle,” Polygenis said.

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