Slower core inflation reduces the odds of an RBA rate rise in Nov.

CCI still narrowly favours a rate rise by the RBA in November, although the odds of a hike have been reduced by weaker inflation in August after a spike in July.

• The RBA’s preferred measure of core consumer prices grew more slowly in August after a spike in July.
  The RBA’s preferred measure of underlying prices – the trimmed mean CPI – grew more slowly in August, up 0.2% after an outsized 0.5% increase in July. The increase in August was below the median market forecast of 0.3%, although it almost rounded up to that figure. Most of the downside surprise reflected unexpectedly slower growth in new home prices, which are the largest single component of the CPI. This slowdown jars with widespread reports of upward pressure on construction costs, partly stemming from the unfolding boom in building data centres. Factoring in marginal revisions to history, annual inflation was unchanged at 3.6% for the third month in a row, the highest rate since late 2024.
  
  
• Residual seasonality likely marginally overstated the July spike in inflation.
  A simple seasonal reanalysis still points to the July spike in prices being overstated because of residual seasonality in the numbers (residual seasonality occurs because there is too short a history to properly seasonally adjust the prices of some goods and services). On CCI's calculation, the trimmed mean CPI rose by 0.4% in July rather than the published increase of 0.5%, with earlier published increases revised higher given annual inflation is unchanged at 3.6%.
  
  
• An alternative measure of core consumer prices also grew more slowly in August after a spike in July.
  In terms of alternative measures of underlying inflation that the RBA monitors, the CPI excluding volatile items/travel/ electricity rose by 0.1% in August after a 0.6% gain in July. On this measure, annual inflation eased from 3.8% to 3.6%.
  
  
• CCI still narrowly favours a rate rise in November, although the odds have been reduced by a downward revision to our nowcast for Q3 core inflation.
  We still narrowly favour a rate rise in November given inflation is still too high, upside risks to global inflation from the war and the AI boom, and a still-tight labour market. However, the odds of a further hike have been reduced by a downward revision to CCI's nowcast for trimmed mean inflation in Q3 from an initial estimate of about 1% based on July data to 0.9% after incorporating the August numbers. (By way of comparison, the RBA staff forecast is that the trimmed mean CPI will increase by 0.8% in both Q3 and Q4 unchanged from 0.8% in Q1 and Q2.) As a cross-check on this nowcast, the 3-month moving average of the trimmed mean CPI calculated using rolling weights rose by 0.9% in both July and August, up from 0.8% in June.
  
  
• Core goods and services prices were also weaker after strong gains in July.
  Market-sector services prices, excluding volatile items, increased by 0.2% in August after jumping by 0.7% in July, up 3.3% over the past year. Market-sector goods prices, excluding volatile items, were unchanged in August after spiking by 0.7% in July. Prices are up 3.1% over the past year. Housing costs, which are the largest component of the CPI, were mixed. Rents rose by another 0.3% in August, up 3.6% over the past year. New home prices unexpectedly grew by only 0.2% in August after recent gains of 0.4% per month. Prices are 5.4% higher than a year ago. Rents could pick up on the recent tax changes, while there should be spillover cost pressures on home prices from the boom in the construction of data centres.