- Inflation grew by 3.5 per cent in year to July
- Moderation followed $300 energy bill rebates
Australia’s inflation rate has fallen but the moderation is only likely to be short-lived because it is based on taxpayer-funded electricity bill relief.
The consumer price index for July fell to 3.5 per cent, down from 3.8 per cent in June.
The Australian Bureau of Statistics noted $300 annual energy rebates, that came into effect on July 1, were behind the sharp fall in headline inflation.
‘The extended and expanded Commonwealth Energy Bill Relief Fund rebate, and the introduction of state government rebates, have begun to take affect from July 2024,’ it said.
‘These rebates have the effect of reducing electricity costs for households.’
The monthly inflation data for July showed a 5.1 per cent plunge in electricity costs over the year, marking a dramatic change from a long run of double-digit annual increases.
Treasurer Jim Chalmers announced $300 rebates in four, quarterly instalments of $75 in the May Budget.
Labor went to 2022 federal election promising to reduce power bills by $275 a year on average.
Australia’s inflation rate has fallen but the moderation is only likely to be short-lived
Queensland‘s Labor government has gone further and announced $1,000 annual power bill rebates, as the party battles to win a fourth, consecutive term in October.
In its May Budget, Western Australia’s Labor government announced a $400 one-off electricity bill credit.
The Reserve Bank in June warned state and federal electricity rebates would only temporarily reduce inflation.
‘Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation,’ it said.
The RBA’s own forecasts have headline inflation falling to 2.8 per cent by June 2025, putting it back within the Reserve Bank’s 2 to 3 per cent target for the first time since 2021.
But it has the consumer price index climbing again to hit 3.7 per cent by the end of next year.
The battle against inflation is still far from over with fruit and vegetable costs soaring by 7.5 per cent.
Rents soared by 6.9 per cent in the year to July, with capital cities still having an ultra-tight rental vacancy rate.
Insurance and financial services costs increased by 6.4 per cent, in a sign domestic, services inflation is now the key driver of Australia’s cost-of-living crisis.
Bread and cereal prices rose by 4.4 per cent while petrol prices were up 4 per cent.
Tobacco had the biggest increase of 13.9 per cent, even though indexation doesn’t kick in until September 1.
The latest fall in inflation is unlikely to persuade the Reserve Bank to cut interest rates before Christmas, with Governor Michele Bullock this month strongly hinting borrowers won’t get relief until 2025.
While the headline inflation number had good news on the surface, the underlying measures of inflation – stripping out volatile price items – had even higher numbers.
The consumer price index – excluding volatile items like fruit and vegetables, petrol and holiday accommodation – showed prices rising by 3.7 per cent.
The consumer price index for July fell to 3.5 per cent, down from 3.8 per cent in June (pictured is a Woolworths shopper on Sydney’s lower north shore)