by Michael Read AFR
Headline inflation fell to 3.5 per cent in July as government energy rebates caused a temporary drop in electricity bills, but the Reserve Bank will need to keep interest rates higher amid broader strength in underlying price pressures.
Economists and the RBA widely expected the July monthly consumer price index to show a sharp fall in headline inflation because of recent state and federal government energy rebates.
The rebates caused electricity prices to fall by 6.4 per cent in July, the Australian Bureau of Statistics said on Wednesday. Without the rebates, electricity bills would have increased by 0.9 per cent.
Queensland’s state Labor government credited all household energy accounts $1000 on July 1 as part of a pre-election cash splash, while some households in Western Australia also received $400 electricity bill credits.
Headline inflation is expected to fall sharply again in August as more consumers receive $300 federal government energy bill credits, potentially sending headline inflation below 3 per cent and back into the RBA’s target band.
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But the latest ABS figures show underlying price pressures remain uncomfortably strong, underscoring the RBA’s concern about the persistence of high inflation.
While annual trimmed mean inflation eased to 3.8 per cent in July, from 4.1 per cent in June, it remained well above the RBA’s 2 to 3 per cent target band.
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