EY chief economist Cherelle Murphy said the data suggested the RBA could hold rates steady.
“The slowing in the quarterly rates of price growth eases pressure on the Reserve Bank to raise rates again in August,with the data suggesting that its dozen rate hikes since May 2022 are working as planned,” she said.
“But with inflation still far above the Reserve Bank’s 2-3 per cent target band,and some ongoing upside risks to wages and food prices,we are not out of the danger zone yet.”
Other economists believe there is still a chance the central bank lifts rates by a quarter percentage point next week. Commonwealth Bank economists expect the Reserve Bank to lift interest rates one last time on August 1,to 4.35 per cent.
But Deloitte Access Economics partner Stephen Smith said the inflation figures were further evidence the RBA had lifted interest rates too high.
“A lot of the inflation in Australia today has been supply-side driven on the back of COVID. And now that that has washed through the system,we’re seeing inflation quite quickly return to more normal levels,” he said.
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While annual services inflation was at a near 15-year high of 6.3 per cent,Smith said that was a distraction,and the quarterly data showed services inflation was falling quickly – from 2.1 per cent in the December quarter to 1.7 per cent in March and 0.8 per cent in June.
Rental inflation was also at highs not seen for years. On a quarterly basis,rents had risen to the highest level since 1988. Smith said that was further proof that lingering inflation pressures were largely problems the Reserve Bank could not fix with higher interest rates.
“The rental challenge,the challenge around housing is about boosting supply,and increasing interest rates actually work against that,” he said.
“So those are the reasons why we think the RBA has gone too far and really tried to attack demand when the issue has been on the supply side.”
Treasurer Jim Chalmers described the figures as pleasing,adding bringing inflation under control remained the government’s main focus.
“Whether it’s getting the budget in much better nick,providing cost-of-living help without adding to inflation,or investing in the supply side of our economy – these are the three most important things you can do in the context of high inflation,” he said.
But shadow treasurer Angus Taylor said the government needed to do more to help get inflation back down to the RBA’s target range.
“We’ve learnt through history if you leave the entire job to the Reserve Bank,it’s painful,” he said.
“The test for the government is whether they are going to treat fighting inflation as their first,second or third priority.”
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During the past three months,the biggest price increase was for household textiles which jumped by 9.5 per cent. International travel and accommodation prices lifted by 6.2 per cent,insurance costs gained 5.3 per cent while bread rose another 5.2 per cent.
Insurance costs have surged by 14.2 per cent over the past year as insurers push up the prices for home,contents and vehicle products. In Brisbane,insurance costs have jumped by 17.1 per cent. Bread prices nationally have risen by 14 per cent,the fastest rate on record.