According to the latest data released by the Australian Bureau of Statistics, the inflation rate in August has dropped to 2.7%, successfully falling back within the Reserve Bank of Australia's target range of 2%-3%. This is the first occurrence since August 2021 and marks a significant improvement from July’s 3.5%. However, despite the improvement in inflation, Reserve Bank of Australia Governor Philip Lowe indicated that there would be no immediate adjustment to interest rates.
In the central bank's monetary policy statement, Lowe noted that although inflation expectations are on a downward trend, this is partly due to government cost-of-living relief measures. He stated that these measures could lead to another rise in inflation once they expire. While the inflation rate in August shows positive signs, Lowe emphasized that a mere decline does not necessarily mean that the issue of inflation has been fundamentally resolved.
Meanwhile, Sean Langcake, Director of Macroeconomic Forecasting at Oxford Economics, also remarked that the current relief measures have temporarily alleviated inflation pressures in the short term. Still, he expects no significant improvement in core inflation levels as government subsidies wane. He noted that the Reserve Bank of Australia might require more inflation data before deciding whether to enter a rate-cutting cycle.
Overall, despite the recent improvement in inflation data, the Reserve Bank of Australia's monetary policy is expected to remain cautious, with interest rates likely to stay unchanged until 2025.
