Australian Consumer Price Index Inflation Eases

Australian consumer price index (CPI) inflation eased as expected in August, reaching a three-year low due to government programs aimed at reducing high energy costs. Core inflation declines were less pronounced.

CPI inflation grew by 2.7% year-on-year, according to data from the Australian Bureau of Statistics released on Wednesday. This figure aligned with expectations and marked a sharp decrease from last month's 3.5%.

Core inflation, which excludes volatile items such as fuel, fresh food, and holiday spending, fell to 3% in August from 3.7% in July. Annual trimmed mean inflation, which also excludes more volatile items, declined to 3.4% in August from 3.8% in the previous month.

Headline inflation is now at its lowest level since August 2021, also falling within the Reserve Bank of Australia's (RBA) target range of 2% to 3%.

The softer inflation reading for August was primarily driven by government initiatives to curb high electricity and fuel costs.

However, despite the CPI inflation falling within the RBA's annual target, the central bank indicated on Tuesday that this trend is expected to be temporary and inflation is likely to rise in the coming months. The RBA has maintained steady interest rates and preserved its hawkish outlook.

The RBA anticipates that CPI inflation will sustainably reach its target range by 2026 and is expected to keep interest rates elevated until at least the first quarter of 2025.

Core CPI inflation readings remain elevated and above the RBA's target range, despite hitting their lowest levels in 2.5 years.