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‘Dodged a bullet’: inflation eases to 3.8%, reducing chances of interest rate rise for Australia’s mortgage holders

From The Guardian · () English

Summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Australia's inflation unexpectedly eased to 3.8% in the year to June, reducing the likelihood of an interest rate hike next month.
  • The Reserve Bank of Australia's upcoming rate decision on August 11 was seen as a critical moment for mortgage holders.
  • Falling fuel prices contributed to the lower inflation rate, though underlying pressures in the service economy remain a concern.

Australian mortgage holders have "dodged a bullet" as inflation unexpectedly eased to 3.8% in the year to June, making an interest rate hike by the Reserve Bank less likely next month. The crucial consumer price report from the Australian Bureau of Statistics had been viewed as a "make-or-break" moment ahead of the RBA's August 11 rate decision.

bullet now officially dodged

— Chris RichardsonCommenting on the unexpected drop in Australian inflation.

Underlying price pressures, while still elevated, eased more than anticipated in the June quarter. The RBA's preferred measure, which excludes volatile prices, softened to 0.8% for the three months. This lifted the annual pace to 3.6%, slightly below the RBA's forecast of 3.8%. Independent economist Chris Richardson declared the "bullet now officially dodged," noting growing evidence that rate hikes were working and that the Middle East war had not impacted inflation as severely as feared.

There’s been growing evidence the RBA’s rate hikes were starting to work in the fight against inflation, and that the Middle East war hadn’t been as bad for inflation (or the economy) as earlier feared

— Chris RichardsonExplaining the reasons behind the 'dodged bullet' assessment.

However, the "fight against inflation hasn't been won yet." Falling fuel prices in June, partly due to stabilization in the Middle East, helped lower the headline rate. But this trend is expected to reverse in July with the restart of the Iran war. Homebuilding costs, for instance, are rising at their fastest pace in three years, driven by increased material and labor expenses.

But, for now, it looks as if the RBA won’t be raising rates on 11 August.

— Chris RichardsonProviding an outlook on the RBA's next rate decision.

Stephen Smith, a partner at Deloitte Access Economics, noted that households and businesses will welcome the news. He suggested the inflation data might keep the Reserve Bank on the sidelines next month. However, he cautioned that "red flags" remain, particularly concerning price pressures in the service economy that are not linked to the Middle East conflict, indicating that domestic inflationary pressures are yet to be tamed.

lower world oil prices as a result of some stabilisation in the Middle East in June contributed to fuel prices falling 10.9% in the month

— Rachael McCririckExplaining the impact of global oil prices on Australian fuel costs in June.
DistantNews Editorial

Originally published by The Guardian. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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