Rapid response - Australian monthly CPI jumps after electricity shock

Australian monthly CPI surprised to the upside today after delayed rebates and electricity repricing pushed housing costs higher. A substantial portion of the impact is likely to be temporary. For the remainder, it will likely put a little more pressure on household budgets and could marginally slow and lengthen the rate-cutting cycle.

• The monthly Australian headline CPI index rose by +2.8% in the year ending July, according to the ABS. Economists had been expecting a more modest +2.3% increase, compared to +1.9% in the previous month.

• Core trimmed mean prices rose by +2.7% yoy, compared to +2.1% in June.

• The narrower core CPI excluding volatile items and holiday travel rose +3.2% in the year to July, compared to a +2.5% rise in June.

• The largest contributors to this rise were Housing (+3.6%), Food and non-alcoholic beverages (+3.0%), and Alcohol and tobacco (+6.5%).

• Annual Housing inflation was +3.6% to July, up from +1.6% to June, reflecting increases in Electricity costs. 

• Electricity costs rose by +13.1% in the 12 months to July, compared to a +6.3% in the year to June. In monthly terms, electricity costs rose by +13.0% in July.

• There were two main contributors to the monthly increase in power prices. The largest contributor was that households in NSW and ACT did not receive payments of the extended Commonwealth Energy Bill Relief Fund (EBRF) in July.  Payment of rebates for households in NSW and the ACT will commence in August instead.  This means that those households had higher out-of-pocket costs for electricity in July.

• Additionally, prices rose due to the annual electricity price reviews taking effect. Costs excluding the impact of EBRF rose by +4.8%.

• Michelle Marquardt, ABS head of prices statistics, said, "This is the highest annual inflation rate since July 2024, following several months of easing inflation".

• Earlier today, Chinese industrial profits remained in contraction in local currency terms in July (-1.5% yoy), albeit an improvement on last month (-4.3%) and May (-9.1% yoy).

• S&P/ASX200 8,951 +0.2%, AUDUSD 0.6486 -0.14%, Aus 2yr 3.36% +2bps, Aus 10yr 4.32% +1bp

  
  

  Fin-X Wealth View

  • The monthly CPI series is based on a sample of prices and tends to be more volatile than the quarterly series, which the RBA pays much more attention to. From November this year, the ABS will produce a monthly series based on the full set of consumer prices, replacing the quarterly series. However, the current figures are still drawn from the sample.

  • Today's monthly figures provided a significant upside surprise. A substantial portion of the electricity price increases is likely to be offset by the rebates arriving in August in NSW and ACT. However, some of the price increases will remain and be reflected in the September quarterly reading.

  • Higher power costs, along with price increases in other consumer staples, will tighten household budgets and likely slow economic growth somewhat due to narrower consumption. So, although the RBA might be slower to ease to avoid a rise in inflation expectations, the easing cycle could last slightly longer as a result.

  • December 2026 rate expectations have firmed by about +0.06% to 3.06%. The next cut is 85% priced in for November, according to Bloomberg calculations.

    
    

    

    
    

    

    

Disclaimer 

The contents of this communication is prepared by Brerona Capital Asset Management Pty Ltd (A.C.N. 627 650 293; AFSL 520526). The information contained in this communication is general in nature and does not take into consideration any investors personal objectives, goals, needs and financial situation. You should not rely on the information contained in this document to make any investment decisions without first consulting an investment professional such as your financial adviser. Any unauthorised use of this document is prohibited. This document (including any attachments) is intended only for the addressee, it may contain information of a privileged and confidential nature. If you are not the addressee of this communication, you must not copy, reproduce, disseminate or use this email and its contents. If this communication has been received in error by you, please inform us immediately and securely delete. Sharing, transmitting, copying, disseminating all or part of the contents of this document may result in a breach of the Federal Privacy Legislation and or copyright and trademark infringement of Brerona Capital Asset Management Pty Ltd and its related entities.