New monthly CPI measure suggests underlying inflation is lifting further.

Australia's annual inflation rate eased to 6.8 per cent in August, after peaking at seven per cent in July.

The ABS released its first monthly inflation indicator, which was a media release with some limited information for July and August ahead of the full first release for the indicator alongside the Q3 CPI on 26 October.

In the year to June, July and August the monthly CPI rose 6.8%yr, 7.0%yr and 6.8%yr.

In Q2 the full quarterly CPI was 6.1%.

What does this mean?

At first glance that may suggest some easing of inflation pressures, but that can be mostly attributable to fuel.

Excluding fuel, which fell in July and fell sharply in August, inflation accelerated over the past few months.

Deputy Governor Michelle Bullock said last week that today’s release is unlikely to influence the Board decision on Tuesday much given it is a new and unproven data source, but the information it does contain is consistent with elevated or quickening underlying inflation pressures even as lower fuel prices provide some offset to headline.

But this should not come as a surprise, most economists did not expect inflation to peak until later this year.

But with the labour market remaining tight, low unemployment and household spending remaining resilient, it's likely the RBA will increase interest rates by a further 50bp at its October meeting next week, before stepping back to a 25bps hike in November and pausing in December to monitor the impact of prior tightening on the economy.

The data released today contains only annual movements for the past three months, so is difficult to read through the implications for the full CPI released next month with confidence. But there are a couple of key implications signalled from this data.

• The large New Dwelling component looks to be slowing from quarterly growth of 5.6%, which alone contributed over 0.5ppt to Q2 quarterly inflation, to something around 3.7% q/q.
•  Price growth in advertised rents data has been signalling an acceleration in CPI rents inflation, and today’s data suggests that that has continued. Rents inflation tends to be persistent and sensitive to domestic labour market conditions, so is closely watched by the RBA. Rents inflation could accelerate to 1% q/q in Q3, which would be its fastest pace since 2013
• Inflation in clothing and footwear may be slowing, but across household goods, there is no sign of a broader slowdown, consistent with ongoing upstream cost pressures that are still being passed on in the near term.
• There has been growth in food inflation including cafes, restaurants and takeaway.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.