Inflation just below expectations
Australia's inflation figures came in at 1.8 per cent for the June quarter, a little less than feared, below market expectations, and well below the 2.1 per cent reported for the March quarter.
Over the year inflation came in at 6.1 per cent, some margin below market expectations for 6.3 per cent.
The trimmed mean (1.5 per cent) and weighted median figures (1.4 per cent) for the quarter also weren't too alarming.
Australia's inflation profile is a little different from some other countries, and is set to peak at a lower level than in many of the other developed country economies.
One of the reasons is that although housing construction costs have soared (new dwelling purchase costs were up by over 20 per cent year-on-year), rental price growth has been much lower.
In fact, the ABS methodology is still picking up negative year-on-year growth for rental prices in Sydney and Melbourne, being the two cities which make up a significant weighting of the index.
Looking at the rental price indices on a cumulative basis below, you can see why.
Part of this dynamic was the so-termed 'race for space', with many tenants fleeing the CBDs and heading to regional areas, or Brisbane and south-east Queensland.
This contrasts significantly with the U.S., for example, where nationally rental price inflation is much stronger, and accounts for the biggest component of the surging inflation figures.
You can read the detailed inflation analysis with James Foster here, but overall, underlying inflation came in at around 4½ per cent over the financial year.
It seems a while ago now that consumer prices actually fell by -1.9 per cent in the June 2020 quarter, before the big rebound.
Bond yields in decline
Financial markets are taking some comfort in these figures.
Australia's 10-year bond yield is currently trading at around 3¼ per cent, way down from 4.1 per cent last month, while the 3-year bond yield is actually trading at under 3 per cent, having run up close to 3.8 per cent last month.
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Rental trends
There is some suggestion that Aussies are returning to Sydney and Melbourne in more significant numbers now, with the latest total weekly rental listings figures from SQM Research showing a continuing decline in both cities.
This should help to take some of the pressure of regional rental markets such as the Sunshine Coast, where rentals have been in chronically short supply.
Source: SQM Research
The wrap
Overall, there is decent evidence of inflation expectations remaining well anchored, and hopefully there should be no need for a panicked monetary policy response.
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