- Headline inflation rate eased to 2.7% in the 12 months to August, down 0.8 ppts from July's 3.5%, marking the lowest CPI montly reading in three years.
- The sharp 17.9% drop in electricity prices dragged the headline figures down.
- However, trimmed mean inflation, which excludes electricity prices, rose 3.4%, the lowest since February 2022.
- Prices of nearly all measured groups rose at slower pace in August.
In line with market expectations, the latest monthly consumer price index (CPI) indicator revealed a hefty 0.8 percentage point drop from July's print, bringing the annualised inflation rate to 2.7% in the 12 months to August.
According to the ABS, this is the lowest reading in three years, when the August 2021 CPI was 2.5%.
Driving the decline was the record 17.9% drop in energy prices, down from 5.1% in July, as the latest instalment of federal and state government subsidies kicked in.
The combined impact of the Commonwealth Energy Bill Relief Fund rebates and state government rebates in Queensland, Western Australia and Tasmania drove the annual fall in electricity prices in August.
These states were ahead in doling out these cost-of-living relief payments, which started in July.
"Federal and state government rebates led to a 14.6% fall in electricity prices in August, which followed a 6.4% fall in July," said Michelle Marquardt, ABS head of prices statistics.
Without the rebates, electricity prices would have risen 0.1% in August and 0.9% in July.
As in the previous month, lower electricity costs decelerated the housing price inflation, which posted a muted increase of 2.6% despite rises in rents (up 6.8%) and new dwelling (up 5.1%) prices.
In addition to electricity, a 7.6% drop in automotive fuel prices also pulled the transport category into negative territory (down 1.1%), further impacting the overall CPI figures.
The dip in fuel costs was driven by lower unleaded petrol prices, averaging $1.85 per litre in August compared to $2 per litre a year ago.
"The falls in electricity and fuel had a significant impact on the annual CPI measure this month," Ms Marquardt confirmed.
Maybe not as big of a win as the government hoped?
Reading into the figures, a bigger proportion of the inflation conundrum is domestically driven.
Tradables inflation - in most cases this is goods inflation, and subject to international price influences - rose just 0.5% in the 12 months to August.
This is just one-third of the annualised rate in July.
In contrast, non-tradables - which are primarily services and largely immune to international price pressures - rose 3.8%.
Domestic price pressures are making up a much bigger slice of the pie than in July, when it was 1.5% and 4.5% respectively.
Services still sticky... pic.twitter.com/1TusQMNMw7
— Alex Joiner 🇦🇺 (@IFM_Economist) September 25, 2024
Government rebates did not affect underlying inflation
Before Treasurer Jim Chalmers can pat himself on the back, it is crucial to note that the subsidy-driven falls in electricity prices did not affect underlying inflation.
Due to price volatility, electricity and automotive fuel are both excluded from measuring underlying inflation.
"When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding automotive fuel, fruit and vegetables, and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending," Ms Marquardt noted.
CPI inflation, excluding volatile items and holiday travel, was 3% in August, higher than the headlines figures but lower than July's 3.7%.
A much larger variance is seen between the headline and trimmed mean figures, which posted a 3.4% rise last month, also down from 3.8% in the prior month.
"Both measures of annual underlying inflation in August are the lowest they have been for 2.5 years," she added.
The RBA Board, in its post-meeting statement following its two-day meeting on Tuesday, acknowledged the temporary impact of these cost-of-living measures on the headline figures.
"Headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief," the statement reads.
"However, our current forecasts do not see inflation returning sustainably to target until 2026.
"In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year."
Based on the RBA modelling released under the Freedom of Information Act earlier this month, these rebates will shed around 0.6 ppts from Q3 headline inflation, due on 30 October.
However, the RBA typically looks past the headline figures, focusing instead on the trimmed mean inflation - which is still above its target band - in measuring price increases.
The RBA decided to leave the cash rate unchanged at 4.35% until the rate-setting committee meets again in November.
Consumer price increases slow down
A noted disinflation is evident in the latest monthly CPI reading, with prices of nearly all measured groups rising at a much slower pace.
Food and non-alcoholic beverages saw a 3.4% increase in August, down from 3.8% in the previous month.
"The largest contributor to the annual rise in food prices was fruit and vegetables, which rose 9.6% in the 12 months to August, compared to 7.5% to July," the ABS said.
Price rises of alcohol and tobacco (6.6%), clothing and footwear (1.7%), education (5.4%), and insurance (6.2%) were also lower compared to their respective increases in July.
Recreation - where holiday and travel falls under - posted a faster rise in costs, up 2.5%, higher than the previous month's 1.1%.
"While this measure (annual trimmed mean) does not directly correspond with trimmed mean inflation in the quarterly CPI, the decline is a positive sign, with the RBA Board noting in yesterday's statement that 'underlying inflation is more indicative of inflation momentum' and therefore more significant in terms of policy setting," ANZ economist Catherine Birch noted.
Photo by evening-tao on Freepik
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