The Australian Bureau of Statistics (ABS) have released their monthly inflation data and thankfully it is less confronting than the numbers released for May.
Inflation is still high but has seen a decrease from 3.8 per cent in June to 3.5 per cent, and significantly down from the 4 per cent seen in May.
One of the biggest changes in the monthly inflation numbers was electricity prices, spurred by government rebates in Western Australia, Queensland and Tasmania.
Elsewhere, housing (including rents and new dwellings), transport and clothing were all lower than they had been in the previous month
We will break down what this means for Australians and it's potential impact on the interest rates, but the short summary is that it is positive news, but not perhaps enough to see any change in the RBA's timeline for rates cuts.
Inflation down = interest rates down?
In an ideal world a decrease in the inflation rate would lead to a reduction to the cash rate, however there are a couple of reasons why we may not see see a cut.
Firstly, the inflation rate for July was 3.5 per cent, which is still above the 2-3 per cent target the RBA is seeking.
Secondly, this data has been impacted by the rebates on electricity rates, which has lowered the cost of electricity, but only on a household level.
Once those rebates end, electricity prices will return to their previous numbers, and that will have an impact on the inflation rate.
Lastly, the monthly inflation data is very useful for understanding the current impact of inflation, but it is more volatile and less helpful for the RBA to make their decision regarding the cash rate.
In June the ABS inflation data for May was very concerning for most economists, as the inflation rate was at 4 per cent.
However, once the quarterly data came out a month later, the opinion had softened, with some economists suggesting a rate cut could occur in 2024.
How has housing inflation decreased?
I was more than a little surprised to see the housing inflation decrease from 5.5 per cent to 4 per cent in July, but most of that was due to a negative 5.1 per cent inflation rate for electricity.
The inflation for new dwelling purchases was at 5 per cent, down from 5.4 per cent in June, potentially driven by the issues plaguing the property industry
In construction, close to 3000 companies entered administration for the 2023/24 financial year, up from the 2213 for the 2022/23 financial year.
Those issues led to a decrease in new residential building work, and as a result likely led to a decrease in the amount of new residential sales.
Rental inflation was down from 7.4 per cent in May to 6.9 per cent in July, which is still high but at least is on the improve.
The property industry is still feeling the effects of the interest rate rises and increased taxation on new developments.
Until supply picks up, housing inflation will still be high.
Economic reaction to the news is upbeat
Several economists are seeing the positive side of the inflation data, albeit wary of the impact the electricity rebates may have had on the results.
Harry Murphy Cruise, economist from Moody's Analytics, was less than positive in his thoughts on the latest inflation numbers, stating: "While that makes the headline inflation figure look a whole lot better, prices are ultimately unchanged - and governments are on the hook to pick up the tab".
Economist Saul Eslake saw the positives in the numbers, but still believed there will not be a rate cut in the near future.
The federal treasurer, Jim Chalmers, credited the Federal Labor Government's policies for helping to reduce the monthly inflation rate.
I think this is a welcome, encouraging result in this monthly inflation data headline underlying, non-tradable, some really welcome developments
It will be a bit of wait until the next rate decision, with the next announcement taking place on September 24.
Hopefully for now it is just a hold and nothing worse.
