Australia: Inflation returns to target in August and surprises markets on the downside
Latest reading: Inflation fell to 2.7% in August from July’s 3.5%, returning within the 2.0–3.0% target range of the Reserve Bank of Australia (RBA) for the first time since August 2021 and falling slightly short of market expectations. The decline chiefly reflected softer price pressures for housing and utilities plus declining transport costs. Moreover, prices for food and non-alcoholic beverages, and clothing and footwear rose at a softer pace.
Accordingly, the trend pointed down, with annual average inflation falling to 3.8% in August (July: 4.0%). August’s result marked the weakest reading since April 2022. Meanwhile, inflation excluding volatile items and holiday travel dropped to 3.0% from July’s 3.7%.
Lastly, consumer prices fell 0.08% month on month, which was below July’s flat reading.
Outlook: Our panel forecasts inflation to tick up from current levels in the fourth quarter due to a lower base of comparison. That said, price pressures will hover only a tad above the upper bound of the RBA’s target band, tempered by tight monetary policy and a higher unemployment rate weighing on private spending. Average inflation is then forecast to return to target next year. Accelerating wage growth and a weaker-than-expected Australian dollar are upside risks.
Panelist insight: ING’s Robert Carnell commented:
“Despite much of the downswing in inflation in August coming from energy prices, fuel and food, there were also reasonable declines in some of the measures of core inflation. […] That said, we still believe that rate cuts are a story for 1Q25, not 4Q24. The market reaction to today’s inflation numbers was also muted.”