Inflation Eases in June Quarter, RBA Expected To Keep Rates On Hold

The annual inflation rate has fallen to 1.9%, and analysts say this will keep the Reserve Bank from raising interest rates anytime soon.

The national measure of inflation came from the Consumer Price Index (CPI) today, showing inflation rose 0.2% in the June quarter, bringing the annual rate to 1.9% – below the Reserve Bank’s (RBA) target of 2 to 3% inflation growth.

CommSec’s Chief Economist Craig James says the “benign inflation” will keep the RBA from making any changes to interest rates in the short term, up or down.

Mr James says inflation is in the ideal “Goldilocks” situation – not too hot, not too cold – and that means it is not a problem.

“If inflation is not a problem, then interest rates will remain solidly on hold,” said Mr James.

[VIDEO] Economic Insights: Benign inflation to keep rate settings on hold https://t.co/GcbO3BpdMc #ausbiz

— CommSec (@CommSec) July 26, 2017

The most significant price rises over the quarter came from medical and hospital services which were up 4.1%, as well as new dwelling purchases by owner-occupiers (+0.9%) and tobacco (+1.0%).

Falls in domestic holiday travel and accommodation (-3.2%), as well as automotive fuel (-2.5%), partially offset those rises.

Australian Bureau of Statistics Chief Economist Bruce Hockman says price falls for automotive fuel and competition in the clothing and food retail markets have contributed to the rise of inflation this quarter.

Mr Hockman also says the ABS continues to monitor the impact of Cyclone Debbie on fruit and vegetable prices.

“While strong price rises were recorded for select fruit and vegetables such as tomatoes, beans, cucumbers, melons, berries and bananas in the June quarter 2017 – these rises were offset by falls in seasonally available fruits such as oranges, mandarins and apples,” he said.

[REPORT] Benign inflation to keep rate settings on hold https://t.co/D9nLMlskzF #ausbiz pic.twitter.com/WQnM46r1uF

— CommSec (@CommSec) July 26, 2017