Australian Inflation Rate Softened to 4.9% in July Easing Hawkish RBA Bets

Highlights

• CPI increased by 4.9% in July, lower than economists’ forecast of 5.2%.
• Housing contributed most to annual price increases, while automotive fuel and fruits contributed to a softer headline figure.
• Excluding volatile items, the annual inflation rate softened from 6.1% to 5.8%.

Australian Monthly CPI Indicator

After better-than-expected Australian retail sales numbers on Monday, inflation figures drew interest this morning. A mixed set of economic indicators has delivered RBA monetary policy uncertainty. With the RBA battling to tame inflation, a pickup in consumption and consumer price inflation would have fueled bets on further RBA moves to bring inflation to target.

However, the Monthly Consumer Price Index (CPI) Indicator increased by 4.9% in July versus 5.4% in June. Economists forecast an increase of 5.2%.

According to the ABS,

• Housing (+7.3%) and food and non-alcoholic beverages (+5.6%) contributed the most to annual price increases.
• Automotive fuel (-7.6%) and fruit and vegetables (-5.4%) contributed to the softer headline figure.
• Excluding volatile items, including automotive fuel, fruit and veg, and holiday travel, the annual inflation rate softened from 6.1% to 5.8%.
• The Monthly Consumer Price Index Indicator peaked at 8.4% in December 2022.

The softer inflation numbers and latest employment figures give the RBA good reason to remain in a vigilant holding pattern. In July, the Australian unemployment rate increased from 3.5% to 3.7%. The rise in the unemployment rate should ease wage growth pressures and demand-driven inflationary pressures.

AUD/USD Reaction to the Australian Inflation Rate

Before the inflation numbers, the AUD/USD rose to a pre-stat high of $0.64832 before falling to a low of $0.64740.

However, in response to the inflation numbers, the AUD/USD rose to a post-stat high of $0.64729 before sliding to a low of $0.64495.

This morning, the Aussie dollar was down 0.37% to $0.64566.

Up Next

The US economic calendar will draw interest this afternoon. Second estimate GDP numbers for the second quarter and ADP employment change figures for August are in focus.

JOLTs job openings suggested a marked shift in labor market conditions, with job openings sliding from 9.165 million to 8.827 million in July. A weaker-than-expected increase in employment change would rein in bets on further Fed interest rate hikes.

Economists forecast the ADP to report a 195k increase in employment versus a 324k surge in July.

The second quarter GDP numbers will also need consideration. However, barring a sizeable downward revision, we expect the ADP numbers to have more impact on the Fed and market risk sentiment.