The Australian Bureau of Statistics (ABS) will release its Consumer Price Index (CPI) data for the second quarter (Q2) on Wednesday, 31 July at 11:30 am AEST. This release will shed light on the ongoing trajectory of inflation in Australia and provide crucial insights for the Reserve Bank of Australia's (RBA) upcoming monetary policy decisions.
Q1 Inflation Recap
In the first quarter (Q1) of 2024, headline inflation rose by 1%, resulting in an annual rate of 3.6% year-on-year (YoY). This figure was lower than the 4.1% recorded in the previous quarter but exceeded the anticipated 3.4%.
The RBA's preferred measure of inflation, the trimmed mean, also experienced a 1% increase quarter-on-quarter (QoQ), pushing the annual trimmed mean inflation to 4.0% YoY. While this marked the softest rise in two years, it still remained well above the RBA's target range of 2-3%.
Commenting on the Q1 data, Michelle Marquardt, Head of Prices Statistics at the ABS, stated, "Annually, the consumer price index (CPI) rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022."
Q2 Expectations and Potential Rate Hike
The preliminary forecast for the second quarter (Q2) suggests headline inflation will climb by 1% QoQ, translating to an annual rate of 3.8%. The trimmed mean is anticipated to increase by 1% QoQ, potentially keeping the annual rate of trimmed mean inflation at 4.0% YoY.
The Australian interest rate market is currently pricing in a 4 basis point (16%) chance of a 25 basis point RBA rate hike in August. If the trimmed mean figure surpasses 1.2% next week, it will significantly increase the likelihood of another RBA rate hike before the year's end. Otherwise, the RBA is expected to maintain the cash rate at 4.35%.
The Importance of the Trimmed Mean
The trimmed mean, a measure that excludes the most volatile price changes, provides a more stable and accurate gauge of underlying inflationary pressures. It is this indicator that the RBA heavily considers when making monetary policy decisions.
The upcoming Q2 inflation data will be closely watched by economists and investors alike, as it will provide critical insight into the RBA's potential future course of action. The possibility of another rate hike hangs in the balance, with the trimmed mean figure holding the key to the RBA's decision.
[Image of AU trimmed mean annual inflation chart]