Australian home owners can breathe a sigh of relief, with economists predicting the Reserve Bank is unlikely to raise interest rates in August after crucial inflation figures came out.

The headline Consumer Price Index rose to 3.8 per cent annually over the June quarter, the ABS revealed on Wednesday, which is still well above the 2 to 3 per cent central bank target band.

But underlying inflation (which strips out volatility) fell to 3.9 per cent, which economists say is in line with the RBA’s stated strategy to see inflation fall back into the target band by late 2025.

Oxford Australia head of macroeconomic forecasting Sean Langcake said it all means a rate hike in August is unlikely and that the cash rate will be unchanged at 4.35 per cent for some time.

“The composition [of inflation] gives a bit of ammunition to the argument that they can just ride this out,” he said.

“Headline [CPI] is in line with their forecasts and basically what the market thought – no major alarm bells there.”

That’s good news for millions of households who have had more than $1000 added to monthly mortgage repayments over the past two years amid a much broader cost-of-living squeeze.

EY senior economist Paula Gadsby is also predicting another pause when the RBA meets next week, but said households also can’t expect interest rates relief any time soon either.

“The cash rate will at least need to remain restrictive for some time yet,” Gadsby said.

“But these data remove concerns that inflation was accelerating, which may have led to a near-term rate hike.”

The Australian Council of Trade Unions (ACTU) is now calling on the RBA to rule out any further rate hikes when it announces its next rate decision.

“It would hurt working people who are already doing it tough when it comes to paying rents or mortgages,” ACTU president Michele O’Neil said.

“It would also risk pushing up employment and do little to tackle the underlying causes of inflation.”

Prices for essentials rise

In the meantime though, cost-of-living pain points are getting worse, particularly for essentials like some groceries and electricity bills, while rents keep rising despite huge affordability problems.

Fruit and vegetable prices were 3.7 per cent higher than a year ago in the quarter thanks to poor growing conditions, particularly for grapes, strawberries, blueberries, tomatoes and capsicums.

Meat and seafood prices fell 0.4 per cent in annual terms, however, with lamb down 10.9 per cent and beef 3.6 per cent lower.

Seafood prices were 5.6 per cent higher, while pork rose 4.7 per cent.

Households also continue to be hammered by soaring power bills, with the ABS reporting a 2.1 per cent increase in electricity prices over the June quarter (and a 6 per cent increase annually).

Government energy bill rebates are helping to cushion the bill crunch though, with the ABS saying that bills would have skyrocketed 14.6 per cent without any taxpayer assistance.

Insurance premiums, meanwhile, have remained high – increasing 14 per cent in annual terms.

There were some welcome falls in recreational costs for families, particularly in domestic holiday costs, which fell 4.8 per cent across both travel and accommodation over the June quarter.

Steady strategy for rates

Langcake explained that while overall inflation is still much higher than the RBA would like, it is moving in the right direction and at a pace that accommodates the central bank’s game plan.

In other words, fears that inflation was proving too stubborn on the back of hot services prices have largely not come to pass, clearing the way for the RBA to keep rates on hold for 2024.

ANZ Bank economists are also anticipating another rate pause in August on the back of the latest inflation figures, saying that while disinflation has slowed, it won’t be enough to convince central bankers that tighter policy is needed.

“While price pressures have picked up a little this year, the underlying trend points to lower inflation,” ANZ’s Catherine Birch and Madeline Dunk explained in a note on Wednesday.