Key Points
- Annual inflation in the June quarter is expected to fall to about 6 per cent.
- The new inflation data will be a key metric used to determine next week's decision on interest rates.
- Economists say grocery prices are expected to go down, but housing costs are forecast to remain elevated.
Australia's inflation numbers have been trending steadily downwards since the annual inflation rate hit a 30-year high of 7.8 per cent in the December quarter.
Economists expect that trend to continue in the June quarter data, which will be released close to midday today, 26 July.
They say that means some good news for cost-of-living relief, but the extent of that will be limited.
What is expected to happen with inflation?
Economists are anticipating the annual inflation rate to drop to about 6 per cent, compared to 7 per cent in the March quarter.
That's still double the upper target of 3 per cent set by the Reserve Bank for "low and stable inflation".
"It is still rather too high, but it also coming down relatively fast," said independent economist Chris Richardson. "It's not yet a done deal that inflation is under control here in Australia."
However, he says the signs are positive.
"There is a considerable downswing now underway. It has been evident in a number of economies in late 2022 and early 2023," said Richardson, pointing to the 2.97 per cent interest rate in the United States and almost zero figure in China.
"In particular, as China slows it is sending an increasing deflationary pulse around the world. But Australia went into the current surge of inflation almost six months later than a bunch of other places.
"Chances are the news will get better pretty rapidly here too, but we're not quite there yet."
Economists surveyed by Reuters forecast the overall headline annual inflation figure will fall to 6.2 per cent in the June quarter, compared to 7 per cent in the March quarter. The trimmed mean inflation, the adjusted figure after removing items with the largest price changes, is expected to drop to 6 per cent from 6.6 per cent.
That would mean inflation remains well above the central bank's inflation target range of between 2 and 3 per cent - a level set in the early 1990s as a way of tracking price stability in the pursuit of sustainable economic growth. That could mean more rate hikes are on the cards.
The Reserve Bank is forecasting the 3 per cent inflation figure will be reached by mid-2025, after first falling to 4.5 per cent in December this year.
What are some of the expected impacts on housing and groceries?
Housing and groceries experienced the highest price rises in the March quarter inflation data.
Rental prices rose by the largest annual amount (4.9 per cent) since 2010, "reflecting strong demand amid low vacancy rates across the country". Annual food inflation was at 8 per cent, compared to 9.2 per cent in the quarter prior.
The inflation metric - the Consumer Price Index (CPI) - is calculated by the Australian Bureau of Statistics as the increase in the level of prices of the goods and services that households buy. Eighty-seven items, across 11 categories, are included for analysis in the "basket of goods and services".
A headline figure is released, along with a trimmed mean inflation, which excludes items like vegetables and fuel that are subject to price volatility due to disruptions to the supply chain, including weather changes and changing oil supply levels in the global market. Trimmed mean inflation, sometimes called core inflation, is used by the Reserve Bank in its decisions on interest rates.
Senior economist Cassandra Winzar at the Committee for Economic Development of Australia (CEDA) says there is likely to be a drop in grocery prices in the June quarter CPI data.
"We are seeing a little bit of slowing in grocery prices. There is potentially some good news there.
"Some of that is due to supply chain pressures that have now since improved, whether that was impacted by the floods or different weather events late last year and earlier this year.
"But for most households, in particular for those who are renting, the housing costs are going to be the biggest concern."
She says when considering the role of migration, including the annual intake to June of 400,000 arrivals, the net effect on inflation is neutral.
"Migrants do have an impact on inflation because they're increasing the demand for goods and services. We see that most significantly at the moment in the rental market. So there is increased demand for rentals due to migration, but the rental market is pretty tight anyway. There's actually strong demand across all sectors of the population for rentals.
"But on the other side, migrants increase the supply of workers in the economy - and that means that we can produce more. So we're increasing the productive capacity of our economy, which means we can grow our economy without adding to inflation. So it's on both sides that migrants can impact inflation. And overall, it's likely to be a fairly neutral impact from increased migration."
What do the inflation numbers mean for next week's interest rate decision?
Interest rates were put on hold at , putting off what would have been the 13th rate rise since May last year.
That month marked the first time since November 2020 when rates were lifted from 0.10 per cent to 0.35 per cent.
The release of could increase the chances of a rate hike when the Reserve Bank board next meets on 1 August.
The unemployment rate remains at a 50-year low of 3.5 per cent.
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Richardson said the CPI numbers and jobs data will all be taken into consideration by the Reserve Bank in their rates decision.
"There is a line of thinking that unemployment has to go up to bring demand down and bring inflation into line. Part of the story in Australia, though, is the magnificent news on jobs that's happening at the same time.
"You get inflation starting when demand is ahead of supply. With supply - when it comes to workers, when it comes to freight prices, commodity prices, all sorts of things - it is on the improve.
"Chances are if you see a CPI increase of 1 per cent or above, the Reserve Bank will swing the baseball bat one more time. If it's less than that, they may finally be done and dusted [with rate hikes]."
He says in his view, even with the succession of rate hikes over the last year, the chances of an Australian recession are low "simply because the surge in migration and student numbers" have grown the overall size of the economy.
