Australian inflation fell to multi-month lows but remained consistently high in July

Data from the Australian Bureau of Statistics (ABS) showed inflation in Australia increased 3.5% y/y in Julyslower than the 3.8% increase in June AND the lowest since March, but higher than the 3.4% increase that markets were expecting.

One reason for the drop may be that the extended reduction in the Commonwealth Energy Bill Relief Fund and the introduction of state government rebates came into effect in July, effectively reducing household electricity costs.

However, excluding volatile items such as fuel, fruit and vegetables and holiday travel, CPI fell further from 4.0% to 3.7% since a year ago in July.

Average inflation has been cut by the Reserve Bank of Australia (RBA). – an alternative measure of core inflation – came in at 3.8%, lower than June’s 4.1% annual increase and marking the lowest since early 2022.

Link to July ABS CPI report

The report further detailed that Housing (+4.0%), Food and non-alcoholic beverages (+3.8%), Alcohol and tobacco (+7.2%) and Transport (+3.4%) recorded the highest earnings for the month.

Australian Dollar vs Major Currencies: 5 min

AUD chart overlay against major currencies by TradingView

While July’s inflation figures hit multi-month lows, the falls were small enough to support RBA Governor Bullock’s recent remarks that core inflation remained “too high” and was falling too slowly to justify a rate cut .

Traders continue to price in an RBA rate cut in December, but today’s strong inflation figures suggest Governor Bullock and her team may not need to take an aggressive monetary easing path.

The Aussie dollar, which eased slightly at the start of the Asian session, jumped overboard in terms of breaking free from high inflation.

So far, the Aussie is seeing minimal pullback against its major peers and is trading in close range to its intraday highs.