“While the sharp rise in electricity prices played a significant role, attributing the entire surprise to this one factor risks overlooking a potentially important shift in inflation dynamics,” said Justin Smirk (pictured), senior economist at Westpac.
Electricity costs surged 13% in July due to timing of State and Commonwealth Energy Bill Relief Fund rebates and annual price reviews. NSW and ACT households did not receive extended rebates in July, leaving them with higher out-of-pocket costs.
“We expect the application of rebates in NSW and ACT to offset some of the ongoing price increases elsewhere and have pencilled in a 3% rise in electricity prices for August, though we note a high degree of uncertainty around this estimate,” Smirk said.
New dwelling prices lifted 0.4% in July, above Westpac’s 0.2% estimate, with ABS noting that project builders are reducing discounts. Rents increased 0.3%, in line with forecasts.
“For August, we expect new dwelling prices to revert to their recent trend of 0.2% monthly growth, though there is upside risk if builders continue to rebuild margins,” Smirk said.
Rent growth is expected to remain steady at 0.3%.
Holiday travel and accommodation rose 4.7% in July, led by a 7.9% increase in domestic travel. Westpac expects a seasonal pullback of -3.2% in August.
The August release will also provide fresh quarterly estimates for services such as restaurants, hairdressing, and insurance. Insurance in particular is under scrutiny after falling -0.5% in the June quarter, with Westpac now acknowledging the risk of another decline.
Auto fuel prices softened slightly, with petrol easing and diesel steady. Westpac is forecasting a modest -0.2% fall in August. Clothing and footwear are expected to record a seasonal decline of -0.7%.
August CPI outlook
Westpac’s near-cast points to a 0.1% rise in August CPI, which would push the annual rate higher from 2.8% to 3.1%.
“As always, there is a high degree of uncertainty around monthly estimates and so it is difficult to clearly define where the risks lie. However, ongoing margin rebuilding by project home builders remains a clear upside risk,” Smirk said.
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