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

Australian mortgage-holders have “dodged a bullet’, with the Reserve Bank now less likely to hike rates next month after new data showed inflation unexpectedly eased to 3.8%, in the year to June, from 4%.The hotly anticipated consumer price report from the Australian Bureau of Statistics had been seen by some economists as a “make-or-break” moment ahead of the RBA’s upcoming rate decision on 11 August.Crucially, the ABS data showed underlying price pressures – while still too high – eased by more than anticipated through the June quarter. The RBA’s preferred measure that trims out the most volatile prices came in at softer than anticipated 0.8% through the three months.That lifted the annual pace to 3.6%, from 3.5%, but was below the RBA’s last forecast of 3.8%.Chris Richardson, an independent economist, declared: “bullet now officially dodged”.“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,” Richardson said.That said, the “fight against inflation hasn’t been won yet”.“But, for now, it looks as if the RBA won’t be raising rates on 11 August.”For everyday Australians, falling fuel prices helped lower the headline rate of inflation in the month of June – a trend that will reverse in July following the restart of the Iran war.Rachael McCririck, ABS head of prices statistics, said “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” of June.But there was plenty of evidence of price pressures. Homebuilding costs, for example, are climbing at the fastest pace in three years, at 5.8%.“This was driven by builders passing on higher material and labour costs,” McCririck said.Stephen Smith, a partner at Deloitte Access Economics, said “households and businesses will breathe a collective sigh of relief” following the softer than anticipated inflation report.“That may be enough to keep the Reserve Bank on the sidelines next month,” Smith said, although “the detail in today’s numbers reveals some red flags”.“Price pressures in the service economy that are not necessarily linked to the Middle East conflict picked up, suggesting that home-grown inflationary pressures are yet to be tamed.”More details soon …