The latest inflation figures confirm that the Reserve Bank wrongly kept interest rates steady at its meeting earlier this month as the official measure of inflation fell to 2.1%, while the monthly indicator dropped outside the RBA target band at 1.9%.
The one thing you won’t hear from the Reserve Bank after the release of the June quarter inflation figures is an apology. Because, to give credit to the RBA, in its May statement on monetary policy it predicted inflation of 2.1%. That it did predict this inflation and yet still kept interest rates steady tells you something about how punishingly timid it has been.
In June, not only was the official CPI at 2.1%, meaning it has now been below 3% for a year, but the core measure of inflation (the trimmed mean) fell from 2.9% to 2.7%:
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Even more astonishing is that in a majority of capital cities, inflation is now below 2% – yep, below the Reserve Bank’s target range:
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And if you want even more confirmation of just how low inflation is at the moment, the monthly measure of inflation – which in November will take over as the official measure once a few more items are added – rose just 1.9%:
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All of this is very good news for those who were struggling with rising prices in 2022 and 2023.
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It is less good news for the opposition. The shadow treasurer, Ted O’Brien, took to the parliament on Monday and told the treasurer that “inflation remains too high”. If that is the case then we need to change the English language as well as economics to redefine “high”.
Even when you compare our core inflation with those in other major economies, Australia is doing well.
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Core inflation is the measure that the RBA mainly focuses on because it gives a less erratic view of what is happening.
What it does is top and tail (or “trim”) the 15% biggest price rises and falls.
This time around, that means, for example, the trimmed inflation measure does not include fuel or lamb prices which fell the most, and at the other end of the scale it mostly ignores the jump in secondary education cost and also electricity prices which jumped 8.1% this quarter.
The reason electricity jumped was the end of state-based subsidies – especially in Western Australia and Queensland.
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The Bureau of Statistics notes that without these subsidies electricity prices across Australia would have risen just 0.4% in the June quarter. But even still, electricity costs on average 14% less than it would without the subsidies. So you can bet the government will be very happy it extended its scheme:
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That the RBA did not cut rates earlier this month is even more inexplicable when you dig deeper into the figures.
The RBA always looks at the price increase of services rather than goods, because services are more closely linked with wages (because you need workers to do the services). In the year to June service prices rose just 3.3% – that is back at the level they rose in 2011 to 2014 – a period when the RBA cut interest rates eight times:
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And the level of inflation is also very broad. The prices of about two-thirds of all items counted in the CPI basket rose less than 3% – that’s a very solid level:
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This of course does not mean all things are hunky dory and life is a sweet basket of chocolates and strawberries.
Pleasingly the prices of non-discretionary items – those things we have to buy, such as food, petrol or insurance – are now rising the slowest, but there is still a lot of catching up to do after the past four years.
Since June 2022, which was about the same time the RBA began lifting rates, wages have risen 14% – well behind the 22% increase in the price of those necessities. That makes for a lot of people still feeling worse off than they were then:
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But overall, the story is very good. Inflation should no longer be such a concern that the RBA holds off on cutting rates until it gets more information.
But unemployment is now rising above 4%; when you combine that with inflation falling close to 2% that equals an interest cut. And even though they won’t, when they do cut in August, the RBA also should apologise for making everyone wait six weeks longer than they needed to.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
