Australia Inflation Rises 2.1% on the Year in Q2 2018

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Consumer prices in Australia were seen rising at a subdued pace in the last three months – ending June 2018. The data underpinned the fact that Australia’s Central Bank could continue extending its rate pause for a third year.

The annual core trimmed mean inflation rate, which is a measure of the core CPI and was seen rising at a pace of 1.9% on an annualized basis at the end of June 2018. The trimmed mean CPI undershot the Reserve Bank of Australia’s inflation target rate for two and half years.

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Headline inflation was seen rising 0.4% on the quarter ending June 2018. This missed estimates of a 0.5% increase. The annual inflation rate was seen rising 2.1% on the year, missing analysts’ forecasts by 0.1%.

Australia Inflation Rate

Despite missing estimates, the annual inflation rate in June 2018 was higher than the March quarter, which showed a 1.8% increase on the year.

Prices of tradable goods which are impacted by the currency and other factors were seen rising at a modest pace of just 0.3% compared to the year before. The data highlighted the lack of price pressures in the global markets.

The second quarter inflation report was the seventh consecutive report that indicated inflation continued to undershoot the median expectations.

Economists noted that the disinflationary pressures continue to plague the Australian economy. The inflation report is unlikely to push the RBA to take any form of policy decision, analysts noted.

Keeping up with the global trend, headline consumer prices were given a boost due to higher oil prices. The boost from higher fuel prices came as crude oil surged more than 60% in the past twelve months through June.

Still, the underlying price pressures remained weak. Australia’s Central Bank had maintained that consumer prices will return to the mid-point of the 2% – 3% inflation target band at a gradual pace. The central bank had highlighted the risks that could arise from weak wage inflation.

The Australian Central Bank had been maintaining the key interest rate at 1.5% in an effort to boost the economy. The prospects of a rate hike for 2019 continue to diminish as real inflation, which is the difference between wages and inflation, remains weak.

With the release of the inflation data for the second quarter, focus will be on the upcoming wage price index report. The Australia WPI is expected to be released in mid-August.

The RBA expects that the annual wage growth will average around 3.5% in order for inflation to rise comfortably within the 2%-3% inflation target band.

Recently, the June labor market report showed some encouraging signs. While the Australian unemployment rate was steady at 5.4%, the economy witnessed a strong surge in full-time jobs.

The Australian economy was seen adding a total of 59,000 jobs in the month of June. Full-time jobs alone grew by 41,200 which also helped to support the increase in the part-time jobs.

There was also increased positive news as the participation rate was seen rising to 65.7%. However, there was still a lot of slack seen remaining in the labor market. Until this slack is absorbed, wage pressures are unlikely to show any signs of rising.

On a year to date basis, the wage price index was seen rising just 2.07%, indicating that there is still a lot of challenges that the Australian Central Bank still has to face.

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