Today’s June quarter inflation rate came in at below market expectations at 6%, with particular progress made in the slowing rate of goods inflation, which dropped from 7.6% over the year to March 2023 to 5.8% over the year to June. Goods inflation is far more responsive to monetary policy changes than services inflation, and this shows that consumers have well and truly responded to the RBA’s tightening measures.

Services inflation is still increasing, and at 6.3% over the year to June is the highest rate since the introduction of the GST. Inflation in the services sector was largely driven by steep increases in the cost of insurance and rent. Further increases to the cash rate are going to have limited impact on price growth in these areas, and it is likely that the RBA board will take this into consideration at their meeting in August.

The RBA’s preferred inflation measure (as it excludes volatile price movements), trimmed mean inflation, came in at 5.9%, a significant decrease from 6.6% over the year to March. This result has reduced the chance of a further cash rate rise at the August meeting. It now seems that Labour Force data will become more crucial to the RBAs decision making. The board will be hoping to see some softening in unemployment rate, to reduce the chance of further pressure on wages.