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Posted: 2017-07-26 01:40:58

Updated July 26, 2017 13:54:46

With the annual inflation rate back below the Reserve Bank's 2-3 per cent target, analysts have concluded the RBA is sidelined from moving interest rates, up or down.

Key points:

  • Clothing, communication and recreation prices all fell over the quarter and the past year
  • The annual inflation rate dipped from 2.1 to 1.9pc, below the RBA 2-3pc target
  • "No smoking gun" for an interest rate move up or down, says CommSec's Craig James

Consumer prices rose just 0.2 per cent in the June quarter, pushing the annual rate of inflation down to 1.9 per cent, below the Reserve Bank's target.

The latest official ABS inflation reading was below the previous reading of 0.5 per cent for the March quarter and 2.1 per cent for the year.

JP Morgan economist Tom Kennedy said there were a few areas that caught analysts off-guard.

"The headline number has come in below expectations. A big part of it was food. That explains some of the downside surprise," he told Reuters.

"The softness in clothing and footwear is a bit of a surprise as well."

The Bureau of Statistics' chief economist Bruce Hockman said price rises related to Cyclone Debbie's damage to certain fruit and vegetables had been offset by falls elsewhere.

"While strong price rises were recorded for select fruit and vegetables such as tomatoes, beans, cucumbers, melons, berries and bananas in the June quarter 2017, these rises were offset by falls in seasonally available fruits such as oranges, mandarins and apples," he noted in the report.

With food prices remaining surprisingly steady, Mr Hockman said it was fuel and clothing price cuts that lowered headline inflation.

"Price falls for automotive fuel and ongoing competition in the clothing and food retail markets has contributed to this quarter's result," he added.

Westpac's Justin Smirk said the clothing price falls were particularly unusual for that time of year, and bode ill for retailers.

"Normally clothing and footwear prices rise in the June quarter post the New Year sales in the first quarter as prices are reset before the post June 30 sales in the third quarter," he wrote.

"In the June quarter 2017, clothing and footwear fell 0.3 per cent."

June quarter inflation figures by category

Quarterly (%)Annual (%)
All groups CPI0.21.9
Food and non-alcoholic beverages-0.21.9
Alcohol and tobacco0.85.9
Clothing and footwear-0.3-1.9
Housing0.32.4
Furnishings, household equipment and services0.70.0
Health2.73.8
Transport-0.62.1
Communication-0.5-3.8
Recreation and culture-0.6-0.1
Education0.03.3
Insurance and financial services-0.12.1
Source: ABS

Reserve Bank 'sidelined' by inflation data

The Reserve Bank's preferred measures of core inflation averaged 1.8 per cent, also remaining below its 2-3 per cent target range.

CommSec's chief economist Craig James said there is "no smoking gun" in the data for the Reserve Bank to consider an imminent interest rate move, up or down.

"Inflation isn't rapidly moving below the target band, nor is it rapidly lifting back into the target band," he wrote in his initial analysis of the data.

"So the Reserve Bank can stay on the interest rate sidelines."

The Australian dollar eased on the weaker-than-expected figures, as traders further pushed back already modest expectations of an interest rate rise, with the currency falling to 79.08 US cents by 12:09pm (AEST).

Topics: economic-trends, money-and-monetary-policy, retail, australia

First posted July 26, 2017 11:40:58

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