Aussie July Monthly CPI Preview

Starting to get murky

Australia’s July monthly CPI will be released on Wednesday. Sharp falls in electricity prices from the July/August billing cycle due to government rebates mean that even more careful interpretation of the monthly indicator will be required going forward.

Be careful what you wish for

There was much consternation about the apparent inconsistency between the run of monthly CPIs in the the June quarter and the quarterly CPI print, particularly for underlying inflation.

Until a complete monthly CPI is published - which is planned for 2025 - the monthly and quarterly CPIs should not be viewed as the same, or even necessarily similar. Even the monthly and quarterly trimmed means are different, with the former trimmed at the annual frequency and the latter trimmed at a quarterly frequency. Same same, but different.

We primarily use subcomponents of the monthly CPI to help ‘nowcast’ the full quarterly CPI. While that approach has been reasonably successful, there are still missing parts until the quarterly CPI is released. Sometimes those missing parts surprise, like for the June quarter.

So a healthy degree of wariness towards the monthly CPI should be maintained, including when mapping across from aggregate measures - particularly the monthly trimmed mean and ex volatiles & travel measures - to quarterly underlying inflation.

Nevertheless, we suspect that market participants will still keenly focus on the monthly CPI release and ‘misses’ relative to consensus expectations.

Electricity prices to start muddying headline inflation

We expect year-ended headline inflation to have been around +3.3% y/y in July, down from 3.8% y/y in June. This is based on our expectation for a small fall of 0.1-0.2% m/m for the non-seasonally adjusted headline CPI.

Monthly volatility in holiday travel & accommodation prices and lower petrol prices are expected to account for a large share of the monthly decline in the CPI.