Inflation has fallen to its lowest level since March, pulled down by a 5% annual cut to electricity prices as billions of dollars in government rebates kicked in.
Consumer prices rose by 3.5% in the year to July, the Australian Bureau of Statistics said on Wednesday, down from the 3.8% pace recorded in the 12 months to June.
The increase was slightly higher than the 3.4% economists had expected, suggesting interest rate cuts may still be months away.
Fruit and vegetable prices shot up by 7.5% in the year to July, up from a rise of 3.6% in June. Alcohol costs also continued to nudge upwards, recording a 3.7% annual rise, up from 3.4% the previous month.
The increases prompted the Australian Council of Trade Unions to again demand big supermarkets cut prices, after Coles posted a $1.1bn profit on Tuesday and Woolworths $1.7bn on Wednesday.
“[They] post megaprofits while working people struggle,” said the ACTU assistant secretary, Joseph Mitchell. “It’s time they do their part and drop prices.”
Energy prices, meanwhile, have pulled back to the level they were a year ago, as federal government rebates hit Western Australia and Queensland along with extra state government subsidies in those states and Tasmania.
National energy prices fell 6.4% in the month of July alone when they would otherwise have risen 0.9%, with more falls expected as rebates roll out to the rest of the country.
Inflation still eased across more reliable measures, excluding the temporary food price bump and energy price fall.
The trimmed mean indicator fell in July to 3.8% from 4.1% in June, and the measure excluding volatile and holiday spending hit its lowest level since January 2022, down to 3.7% in July.
While the treasurer, Jim Chalmers, said Wednesday’s figures showed government subsidies were bringing inflation down, economists said price rises had started to slow across the board.
“Disinflation broadened in July and was not solely due to government rebates,” said CBA economist Stephen Wu.
Rent increases slowed to 6.9%, below 7% for the first time this year, while petrol prices fell 2.6% in July, dragging their annual increase down to 4.0%.
The downward trajectory was consistent with RBA forecasts for inflation by December to slide to 3.0% and the trimmed mean to 3.5%, according to AMP’s chief economist, Shane Oliver.
While the easing price pressure was good news for consumers, it may not be enough to convince the RBA board to deliver relief to mortgage holders, Oliver said.
RBA governor Michele Bullock warned earlier in August inflation was falling too slowly to justify a rate cut by the end of the year.
The Australian dollar rose to US68c for the first time since January, reflecting growing investor recognition that interest rates could stay at their 12-year high in months to come.
However, markets held onto expectations the reserve bank would cut its key rate in December after the release of Wednesday’s figures.
David Robertson, the chief economist at Bendigo Bank, said the inflation fall should allay fears of a rate hike when the RBA meets in September but wouldn’t be enough to deliver a rate cut in 2024.
While the monthly data is less reliable than the quarterly numbers, the RBA will gain further information on how Australians are responding to rising prices on Friday with the release of retail spending data.
