CPI at 4.9% in July: ABS

According to the latest data from the Australian Bureau of Statistics (ABS), the monthly Consumer Price Index (CPI) indicator rose 4.9 per cent in the 12 months to July 2023, down from the 5.4 per cent recorded in June 2023 and the lowest annual reading since February 2022.

Excluding volatile items and holiday travel, the annual movement for the monthly CPI indicator rose 5.8 per cent in July, down from the 6.1 per cent rise in June, while annual trimmed mean inflation was 5.6 per cent in July, down from the rise of 6 per cent in June.

The CPI data for the second quarter ended June 2023 had previously shown encouraging signs that inflation was beginning to moderate, recording an increase of 0.8 per cent, contributing to an annual inflation rate of 6 per cent.

For the month of July, housing (7.3 per cent) and food and non-alcoholic beverages (5.6 per cent) were the most significant contributors to CPI increase, while helping reduce the July increase were price falls for automotive fuel (7.6 per cent) and fruits and vegetables (5.4 per cent).

According to the ABS, the increase for housing of 7.3 per cent was slightly lower than the previous month’s increase of 7.4 per cent.

New dwelling prices recorded the lowest annual rise since October 2021 at 5.9 per cent due to the price increases in building materials continuing to ease brought on by a softening in new demand and improvements in the supply of materials.

ABS head of prices statistics Michelle Marquardt said: “Annual price rises continue to ease from the peak of 8.4 per cent in December 2022.

“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel."

ANZ senior economist Adelaide Timbrell said this month's CPI indicator was an "encouraging development" ahead of Q3 CPI, as it sat below the major bank's and the market expectations of 5.5 per cent and 5.2 per cent, respectively.

Commonwealth Bank of Australia (CBA) economist Stephen Wu said the CPI outcome was a "welcome and continued sign of progress" in the Reserve Bank of Australia (RBA) returning inflation back to the 2-3 per cent target.

Westpac senior economist Justin Smirk stated the softer-than-expected results were consistent with the major bank's view that there is no near-term pressure for the RBA to increase interest rates again.

"We have long expected the annual rate of inflation to move below 4.0 per cent by year-end, a more aggressive decline than the RBA are expecting," Mr Wu said.

Furthermore, rent prices increased 7.6 per cent in the 12 months to July 2023, up from the 7.3 per cent in the previous months as the demand for rental properties remains strong amid a tight rental market.

Electricity prices also rose, up 15.7 per cent in the 12 months to July and increased 6 per cent in the month of July, reflecting price reviews across all capitals.

According to the ABS, rebates introduced from July lessened the impact of electricity price increase for eligible households through the Energy Bill Relief Fund.

“The Energy Bill Relief Fund provides eligible households with rebates ranging from $43.75 to $250 in July. If we exclude the impact of rebates from the July 2023 figures, electricity prices would have recorded a monthly increase of 19.2 per cent,” Ms Marquardt said.

Noting the CPI figures, federal Treasurer Jim Chalmers said the figures were "encouraging" but acknowledged that Australians were "still under the pump".

"It’s pleasing to see inflation is moderating but we know it will remain higher than we’d like for longer than we’d like," he said, flagging that the government was working to reduce the burden of high inflation, such as through its energy bill relief (delivered in partnership with the state governments).

"This data makes it very clear our energy price relief plan is working as intended by helping to take some of the sting out of power price rises when people need it most," Mr Chalmers said.

"Inflation remains the primary challenge in our economy and that’s why the primary focus of the Albanese Government is rolling out billions of dollars in assistance to take some of the edge off cost‑of‑living pressures without adding to inflation."

[RELATED: NAB economist expect elevated Q3 CPI]