Today’s June quarter CPI number will be somewhat of a relief for the Reserve Bank of Australia (RBA) board, as the number came in at about what was expected. Trimmed mean inflation fell slightly, from 4.0 per cent in the March quarter to 3.9 per cent.

This measure removed volatile items and highlights just how much inflation is being impacted by volatile items. This quarter, fruit and vegetable prices rose not due to overheating demand, but to poor weather impacting growing conditions. One of the surprise increases in prices was in clothing and footwear, where prices had moderated substantially due to lower demand and discounting among retailers. However, the ABS pointed out that the increase was largely due to new winter stock coming in to stores over the quarter that isn’t yet discounted.

Retail Trade for the month of June was also released today, and is very helpful to read in conjunction with the CPI figure, particularly given that quarterly retail volume data was also released. While retail prices rose, particularly in household goods, other retailing and department stores, this was largely due to consumers spending money while end of financial year sales were on.

Retail volumes, on the other hand, continued to fall. Volumes have fallen for six of the past seven quarters. Retail volumes on a per capita basis have also fallen for eight straight quarters. Population growth appears to be impacting inflation on the services side, where new migrants are demanding things like rental accommodation, healthcare, education and utilities.

Interestingly, growth in cafes, restaurant and takeaway food services was flat, which reflects the extremely difficult operating conditions the food and beverage sector is operating in. This contributes to CreditorWatch’s forecast that business failures in the café and restaurant sector will increase from already very high levels over the next year.

Overall, today’s data is unlikely to convince the RBA Board that another rise to the cash rate is warranted. Demand from consumers has very clearly tightened for some time now, and volatile items are the main contributor to those higher-than-expected monthly CPI releases.

While the RBA would certainly like to see faster progress being made on the fight against inflation, another increase to the cash rate is unlikely to achieve this, given that households and businesses that would pull back on spending due to higher interest rates have already done this.