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Australia CPI beats forecasts, keeping RBA bias hawkish
July CPI rose 1.0% on the month and 3.5% year over year, while a household spending indicator climbed 1.1% in July and construction activity fell 2.1% in Q2.
Action Forex said the main Australia market driver this week was the July CPI report, which surprised modestly to the upside on both the headline and trimmed mean measures. The CPI came in at 1.0% on the month and 3.5% year over year for the headline, and 0.5% on the month and 3.6% year over year on a trimmed mean basis, with durable goods pricing strength contributing.
The outlet noted that gains in durable goods categories including clothing and footwear, motor vehicles and household contents were partly linked to regular seasonality related to the end of the EOFY sales discounting period. Of more concern was the upside surprise in market services inflation, even after accounting for a larger-than-expected awards wage increase that took effect in July.
Action Forex added that the inflation print was followed by another solid data point, with a household spending indicator up 1.1% in July, 7.0% year over year, led by discretionary spending categories. At the same time, it cautioned that some strength may have been more price than volume driven, and that the end of a fuel excise cut could temper discretionary momentum if global oil prices stay elevated.
Looking ahead, the report said two partial investment indicators preceded Q2 GDP, with construction activity down 2.1% in Q2, driven mainly by the mining sector after a large mining infrastructure installation in Western Australia earlier in the year. Private CAPEX fell 3.6% in Q2, though the annual pace remains elevated at 10.7% year over year, and the outlet said an unwind in machinery and equipment spending was the chief factor.