Key takeaways
Good news on the global inflation front has continued to flow down under and inflation looks set to continue to moderate and move lower into the first half of 2024.
The high level of inflation that has challenged the Australian economy and seen interest rates rise at the fastest pace in a generation continued to ease in the June quarter, likely allowing the Reserve Bank (RBA) to maintain their pause at next week’s board meeting - though it’s a close
Good news on the global inflation front has continued to flow down under and inflation looks set to continue to moderate and move lower into the first half of 2024.
The high level of inflation that has challenged the Australian economy and seen interest rates rise at the fastest pace in a generation continued to ease in the June quarter, likely allowing the Reserve Bank (RBA) to maintain their pause at next week’s board meeting - though it’s a close call.
In a recent report from PropTrack, author Senior Economist Eleanor Creagh outlines that the economic pressures faced in Australia due to high inflation levels that have compelled interest rates to increase at the fastest pace in a generation.
However, the June quarter's easing has provided a respite, allowing the Reserve Bank of Australia (RBA) to potentially maintain their pause in the forthcoming board meeting.
Australian Bureau of Statistics (ABS) released data showing a decrease in the Consumer Price Index (CPI) annual increase from its 30-year high of 7.8% at the end of last year to 6.0%.
This disinflation trend, coupled with trimmed mean inflation lowering to 5.9%, came as a positive surprise, falling below market expectations and RBA's official forecasts.
Creagh highlighted that both the 'headline' and 'trimmed mean' inflation measures show promising signs, steering the Australian economy in the right direction.
Headline inflation, Creagh explained, slowed to 0.8% in the June quarter, marking the slowest quarterly pace since September 2021.
Underlying inflation trends suggest easing supply constraints have led to goods inflation falling from 7.6% in the March quarter to 5.8% in the June quarter.
However, services inflation remains strong and broad-based, reflecting the tight labour market and stronger wages growth.
Creagh stressed that,
"Services price growth shows signs of slowing, and the increase of 0.2 percentage points in the annual pace was the lowest since the March 2022 quarter."
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She also pointed out that the monthly CPI indicator for June further substantiates the disinflation trend, slowing to an annual increase of 5.4%.
More rate increases still possible
Despite these positive trends, Creagh cautioned that the current inflation level is still too high and may necessitate further tightening.
However, the disinflation momentum could provide the RBA with breathing room to pause interest rate hikes as it continues to monitor the economic outlook.
Rising rents are a problem
Amid these inflation dynamics, rental price pressures, influenced by the ongoing rental crisis, stand out as a substantial contributor to inflation.
The national rental market remains extremely tight, with CPI rental prices rising 6.7% in the 12 months to June, the largest annual rise since 2009.
"Strength in advertised rental price growth seen on realestate.com.au is flowing through to paid rents for all leases," Creagh noted.
The persistent undersupply of properties available to rent, combined with strong rental demand fueled by a surge in immigration, has driven advertised rents in the capital cities up by 17% over the year to June 2023.
This rental squeeze has resulted in weekly rents soaring and vacancy rates dwindling.
Although signs of easing conditions are appearing in regional rental markets, the major capital cities continue to grapple with these tough conditions.
With vacancy rates at or close to historic lows, Creagh predicts further increases in rental prices.
The bottom line
Creagh's analysis of the current economic landscape offers cautious optimism about Australia's inflation outlook.
While the moderation of inflation is indeed good news, rental price pressures remain a challenge and will continue to shape the country's economic narrative in the months ahead.
