Australian inflation accelerated sharply in August as higher fuel, electricity and housing costs pushed consumer prices further above the Reserve Bank of Australia’s target range.
The Consumer Price Index (CPI) rose 4.0% over the year to August, up from 3.5% in July, according to the Australian Bureau of Statistics (ABS). Prices increased 0.4% over the month in original terms and 0.7% on a seasonally adjusted basis.
The annual result was slightly below market expectations of around 4.1%, but still represents a substantial acceleration in headline inflation and comes just a day after the RBA increased the cash rate by 25 basis points to 4.60%, its highest level in 15 years.
Importantly for the RBA, trimmed mean inflation remained at 3.6% for a third consecutive month, suggesting underlying price pressures remain persistent despite the headline increase being heavily influenced by energy costs.
Housing remains biggest inflation driver
Housing was the largest contributor to annual inflation, with prices rising 5.7% over the year to August.
New dwelling prices increased 5.4% as builders continued passing higher labour and material costs through to customers, while electricity prices also contributed strongly to the overall increase.
“Annual inflation of 5.7 per cent for Housing reflected rising costs for both New dwellings and Electricity,” ABS head of price statistics Rachael McCririck said.
The persistence of housing inflation highlights the domestic component of Australia’s inflation problem even as global energy prices add another layer of pressure.
Fuel prices jump almost 15%
Transport was the second-largest contributor, rising 5.6% annually, driven primarily by a surge in automotive fuel prices.
Fuel prices jumped 14.8% in August alone, following a 7.5% increase in July, reflecting higher global oil prices and the unwinding of the remainder of the Federal Government’s fuel excise relief measures.
The scale of the fuel increase explains much of the gap between headline and underlying inflation.
Automotive fuel and electricity were both excluded from the trimmed mean calculation because of their unusually large price movements, leaving underlying inflation unchanged at 3.6%.
RBA remains under pressure
The figures reinforce the difficult inflation backdrop facing the RBA following Tuesday’s rate increase.
The central bank said when announcing the hike that inflation remained elevated, global energy prices had risen substantially and domestic businesses continued to report cost pressures.
While the 4.0% headline reading was marginally softer than economists expected, inflation remains well above the RBA’s 2%-3% target range, while underlying inflation has shown little improvement over the past three months.
The data therefore provide little evidence yet that price pressures have been fully brought under control, although the slightly softer-than-expected headline result could temper expectations for an immediate follow-up rate increase.
With the cash rate now at 4.60%, attention will increasingly turn to whether higher borrowing costs and a cooling labour market can bring underlying inflation down without causing a sharper slowdown in household spending and economic activity.
