Australia's August inflation rate falls to the lowest level in three years, potentially prompting the Reserve Bank of Australia to cut interest rates.

In August, some inflation indicators in Australia cooled down as government assistance measures to mitigate the impact of energy costs began to take effect, lowering overall price levels. Data released by the Australian Bureau of Statistics on Wednesday showed that the CPI rose by 2.7% compared to the same period last year, in line with economists' median estimate, marking the first time since August 2021 that it has been below the Reserve Bank of Australia's target upper limit of 3%. The adjusted core inflation indicator fell from 3.8% a month ago to 3.4%. The core inflation indicator smooths out volatile items and is a focus of the Reserve Bank of Australia. The policy-sensitive 3-year Australian government bond yield reversed its intraday gains, and the Euro also retreated from its earlier 19-month high. Michelle Marquardt, the head of price statistics at the Australian Bureau of Statistics, said, "The two annual underlying inflation measures for August are at their lowest level in two and a half years." IG Markets analyst Tony Sycamore said, "With the core inflation decline seen today and replicated in the crucial third quarter inflation figures, this suggests that the Reserve Bank of Australia will shift to a dovish stance at its November meeting." The quarterly CPI data will be released on October 30. The day before this data was released, the Reserve Bank of Australia's monetary policy committee kept the benchmark interest rate at a 12-year high of 4.35%, stating that they remain vigilant to upward risks in inflation. RBA Governor Brock reiterated that she does not expect a rate cut this year and pointed out that monthly inflation indicators are "quite unstable" and do not cover all items, potentially being influenced by one-off or temporary factors. The RBA's goal is to bring consumer prices back to the target range of 2%-3% and ensure they remain at that level. Brock told reporters after the September policy meeting, "If the data on Wednesday came in at two, that doesn't mean that we've got inflation nailed. It just means that it's there for now." Bloomberg economist James McIntyre said, "The mean suggests that inflation may be returning faster than the RBA anticipated. If this is seen again in the September and third-quarter CPI data, the quicker easing of core inflation pressures could drive a rate cut at the RBA's meeting on November 4-5." The RBA's tough talk highlights its efforts to control prices - the central bank has pushed back the time frame for core price growth to return to the target midpoint. Australia's stance contrasts sharply with countries such as New Zealand, the US, and the UK that have already entered a loose cycle. The RBA has taken a different approach to curb post-pandemic inflation, as it aims to maintain employment growth. Australia's rate hikes have been lower than in other countries, leading to its benchmark interest rate being about 1 percentage point lower than the Federal Reserve's. The RBA has kept rates unchanged this year, while emphasizing that total demand still exceeds the economy's supply capacity. The central bank's forecast shows that core CPI will not return to the target range until the end of 2025. Australian Treasurer Jim Chalmers welcomed the results on Wednesday, saying that while monthly data may be "choppy," the mild data is "very encouraging." The report also showed that in various price categories, real estate rose by 2.6%, food and non-alcoholic beverages by 3.4%, and alcohol and tobacco by 6.6%. Energy subsidies from the Australian federal government and states drove electricity prices to a record 17.9% drop, while fuel prices fell by 7.6%. Over the past year until August, rents have risen by 6.8%, reflecting tight markets in most major cities. The Australian Bureau of Statistics said that new home prices increased by 5.1%, remaining around 5% for the past year, as builders passed on the rising costs of labor and materials. New home prices include newly built homes and major renovations.