Taxpayer-Funded Rebates, Public Transport Subsidies Drive Inflation to 3-Year Low

While inflation has fallen within the target 2 percent range, the RBA chief has already warned that this would likely be temporary.

Pedestrians and shoppers move through the central business district (CBD) in Sydney, Australia on Aug. 6, 2024. Lisa Maree Williams/Getty Images

Inflation in August has dropped to its lowest point in three years.

According to the latest figures from the Australian Bureau of Statistics, annual headline inflation fell to 2.7 percent last month, down from a 3.5 percent increase in July.

This marks the first time since October 2021 that inflation has entered the Reserve Bank of Australia’s target range of 2 to 3 percent.

The figures come after RBA Governor Michele Bullock indicated on Sept. 24 that taxpayer-funded relief measures would bring down headline inflation.

Freebies at Work

In July, residents across Australia benefited from substantial reductions in their electricity bills as part of government’s $75 energy rebate announcement. As per ABS data, it resulted in an overall reduction in electricity prices of 17.9 percent.

Further, inflation for public transport costs fell 1.5 percent in the 12 months to August 2024, primarily due to cheaper or free public transport schemes in Brisbane, Hobart, and Darwin, the ABS said.

In August alone, urban transport fares experienced a monthly decline of 5.2 percent.

This decrease was driven by the Queensland Labor’s government’s 50-cent public transport fare initiative, which began on Aug. 5, 2024, effectively reducing out-of-pocket costs for public transport users.

Global Factors at Play

Reduced global demand for fuel has also contributed to the drop in inflation, leading to automotive fuel prices being 7.6 percent lower compared to August 2023, a significant change from the 4.0 percent increase recorded in July.

“On a monthly basis, fuel prices have decreased in three of the last four months, driven by reduced global demand that has lowered the overall price of oil,” said the ABS.

No Relief in Housing and Food Sector

Housing continues to be a pain point.

The prices for new homes and major renovations increased by 5.1 percent over the past year, remaining close to 5 percent since August 2023.

Builders have been raising prices due to increased costs for labour and materials.

Rents also rose 6.8 percent, slightly down from the 6.9 percent increase seen in July. This high rental price growth is primarily due to a tight rental market, with few available properties in most capital cities.

Food and non-alcoholic beverage prices increased by 3.4 percent in the year leading up to August, down from a 3.8 percent rise in July.

The main contributors were fruits and vegetables, which saw a significant price jump of 9.6 percent. This surge was largely due to poor weather conditions and diseases that negatively impacted crop yields, affecting items like strawberries, grapes, broccoli, and cucumbers.

Additionally, the cost of eating out and takeaway rose 2.9 percent, while other food products saw a 4.2 percent increase.

In contrast, dairy and related products experienced a slight decline, with prices falling by 0.2 percent driven primarily by reduced cheese prices.

Overall, while food prices are still rising, the pace of that increase has started to slow down.

Cost of Travel Up

Another sector to experience a little positive growth was tourism.

In the 12 months leading up to August, holiday travel and accommodation prices saw a noticeable increase of 2.8 percent.

This indicates that, on average, consumers paid significantly more for vacations and lodging compared to the previous year. This increase is especially noteworthy when compared to the very slight rise of only 0.2 percent recorded in the year to July, highlighting a shift in the holiday market, possibly due to growing demand as travel restrictions eased.

However, in August alone, prices experienced a decrease of 1.4 percent, primarily driven by a 2.6 percent decline in domestic holiday travel and accommodation costs.

The reduced demand for travel in August was largely influenced by the absence of school holidays during that time, which typically sees families booking vacations. Without the incentive of school breaks, many families may have postponed their travel plans, leading to fewer bookings and lower prices.

RBA Says Wait and See

Bullock, in her speech, warned that while inflation numbers might temporarily reflect improvement, it does not indicate that inflation is under control or sustainably within the target range.

“If tomorrow we see an inflation number starting with a two, indicating it falls within the band, it doesn’t mean we have effectively managed inflation,” she said while announcing no cuts to interest rates.

According to Bullock, inflation is expected to enter the target range by year’s end but is projected to rise again to 3.7 percent a year later once government support measures come to an end.

Things are expected to eventually fall under control by mid-2026.