Inflation hits top of Reserve Bank target at 3pc

Updated

Inflation has risen to 3 per cent, hitting the top of the Reserve Bank's target range, with key underlying measures also nearing the top of the RBA's band.

The Bureau of Statistics Consumer Price Index rose 0.5 per cent in the June quarter, following a rise of 0.6 per cent in the March quarter.

That left the annual headline inflation rate at 3 per cent - right in line with the typical economist forecast, but also right at the top of the Reserve Bank's preferred range of 2-3 per cent price rises.

However, the Australian dollar jumped around 0.4 of a cent to 94.3 US cents by 11:37am (AEST), as key measures of underlying inflation came in slightly above expectations.

The weighted median was 2.7 per cent, while the trimmed mean was 2.9 per cent, meaning the Reserve Bank's preferred measure of inflation that excludes the most volatile price moves was 2.8 per cent over the past financial year.

"It's a mixed bag - in line with expectations for the headline, but the underlying numbers look a fraction higher," the Commonwealth Bank's chief economist Michael Blythe told Reuters.

"They're a warning sign that the inflation backdrop is not as benign as markets want to price in at the moment."

Citi's economists Joshua Williamson and Paul Brennan agree that the rise in core inflation means that any further rate cuts look very unlikely.

"The market had become somewhat more sympathetic in recent weeks to the view that there was more likelihood of rates moving lower in the current cycle rather than remaining on hold. This view will now require a reassessment," they concluded in a note on the data.

That sort of reaction to the data sent the Australian dollar higher, amid perceptions it leaves less room for the RBA to consider cutting official interest rates further from their current record low of 2.5 per cent.

The prices that rose and fell most

June quarter Consumer Price Index Category % since Mar qtr % since Jun '13 All groups CPI 0.5 3.0 Food & beverages 0.4 2.5 Alcohol & tobacco 1.6 7.1 Clothing & footwear 1.5 -0.6 Housing 0.8 3.9 Household goods & services 1.1 1.0 Health 2.9 4.9 Transport -0.7 2.7 Communication -1.7 -0.3 Recreation -0.3 3.3 Education 0.0 5.1 Financial services 0.0 1.0 Source: Australian Bureau of Statistics Source: Australian Bureau of Statistics

The Bureau of Statistics says the most significant price rise in the June quarter was a 4.6 per cent jump in the cost of medical and hospital services, mainly due to health insurance premiums going up on April 1.

The cost of new dwelling purchase also climbed 1.6 per cent, while rents were up 0.6 per cent over the three months to June 30.

Tobacco price rises also added to inflation, with flow on impacts from an excise increase contributing to a 3.1 per cent jump in prices.

However, some more discretionary consumer items also posted solid price increases.

Perhaps due to the increasing in new housing development, a 4.8 per cent jump in furniture prices contributed to a 1.1 per cent jump in the household goods and services category. Over the past year, a 7.6 per cent rise in childcare costs was the most significant cost increase in this category.

The clothing and footwear category posted surprisingly strong price growth for the June quarter given the recent reports of weak sales and profit downgrades by many retailers.

In contrast to a 0.6 per cent fall in prices over the past financial year, clothing and footwear costs jumped 1.5 per cent last quarter, with menswear leading the way.

However, not all prices were going up.

Domestic holiday travel and accomodation prices fell 3.8 per cent, while international holiday costs went up a similar amount.

Audio, visual and computing media and services dropped 1.8 per cent.

Telecommunications services also recorded a 1.6 per cent fall in prices, while a 2.7 per cent decrease in the price of fuel led to a fall in transport costs.

Topics: economic-trends, money-and-monetary-policy, business-economics-and-finance, australia

First posted