CPI Falls Back over 2Q
Australian CPI came in below expected over the 2Q printing 1.9% year over year, well beneath the 2.2% level forecast. Despite the decline underlying measures of inflation, which the RBA focus on, were in line with expectations at 0.5% quarter over quarter. However, annual underlying inflation remains below the bank’s 2%-3% target at 1.8% year over year. The two readings taken together show the strongest reading for underlying inflation since 2015, further increasing hawkish expectations for the RBA.
Breaking down the data
Summary
Despite the fallback in prices over the 2Q, the broader picture shows that inflation is generally moving higher. Indeed, the two key readings of underlying inflation were in line with expectations and showed the strongest combined readings since 2015 while non-tradable inflation printed its highest level in three years.
While the weaker print was explained through lower petrol prices, the unexpected result was the continued decline in clothing and footwear which was reportedly a result of seasonal discounting. Prices in this area have now fallen nearly 2% over the last year, and competitive pressures and a stronger AUD are likely to further this deflationary trend.
