Households are likely to be spared from another rate rise when the Reserve Bank meets next week, after inflation eased to 4.9 per cent for the year to July.
The latest consumer price index figures, released by the Australian Bureau of Statistics, will be welcome news to borrowers who are struggling to keep up with repayments after stomaching 12 rate rises since last May.
The result undershot market expectations which had anticipated price pressures would be more stubborn and decelerate to 5.2 per cent.
But underlying price pressures remain persistent, with economists and the RBA flagging that rates may need to rise again in order to tame stubbornly high inflation.
Markets are pricing around a two in five chance of another rate hike by year-end.
Excluding volatile items, including petrol, fresh produce and holiday travel, the drop in inflation was far more modest, easing to 5.8 cent, down from 6.1 per cent in June, showing that broad inflationary pressures continued to exist.
The softer than expected headline inflation figure sent the sharemarket up 1.1 per cent.
Excluding volatile items, including petrol, fresh produce and holiday travel, the drop in inflation was far more modest, easing to 5.8 cent, down from 6.1 per cent in June, showing that broad inflationary pressures continued to exist.
The ABS monthly CPI indicator does not capture a full picture of price pressures across the economy in any given month. As the month of July is heavily weighted towards measuring prices of goods, the indicator did not fully account for still-high services inflation.
The fresh figures come ahead of the September RBA board meeting next Tuesday – which will be outgoing governor Philip Lowe’s last – where members will carefully assess the effects of elevated borrowing costs on households against the risks of allowing inflation to remain elevated for an extended period.
