Fuel prices dropping
Governor Lowe highlighted in a speech a month ago how inflation will eventually fall back to target.
One example he highlighted was fuel prices having soared 37 per cent over the year to June, adding a full percentage point to inflation.
Lowe pointed out that even if oil prices stay high, the annual rate of inflation for oil will eventually fall from 66 per cent to 0 per cent.
Some related good news this week, with the average cost of unleaded fuel in Brissie pulling back to $1.64/litre.
It wasn't so long ago we were forking out $2.30 in Noosa, so this is some improvement!
The 6-month fuel excise cut is due to expire at the end of September, so Albanese and Chalmers could do a lot worse than rolling it over if they're serious about tackling living costs (I guess they won't though).
Internationally, there's a similar dynamic at play for freight costs, which are still 4x the level they were at pre-pandemic, but have now been falling for 10 weeks on the bounce.
Over the past 20 weeks the freight index has fallen by 45 per cent.
The price of semi-conductors are also well off their recent highs, which should help to kick-start car production.
Some of the supply-side problems in the global economy related to the pandemic are now being resolved.
The balancing act for Governor Lowe over the coming months will be to tighten monetary policy to bring supply and demand back into balance, and reduce inflationary pressures, without going so far as to tip households dealing with higher living costs into financial distress.
Markets are looking for a 50 basis points hike this week (to a cash rate target of 1.85 per cent), and there will almost certainly be another hike beyond that, before any potential pause.
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CoreLogic will release the July housing index figures today, with significant drops for Sydney (-2.2 per cent), Melbourne (-1.5 per cent), Brisbane (-0.8 per cent), and regional Australia (-0.8 per cent).
Property investors have been somewhat compensated, with rents up a further 0.9 per centin July, and up 10 per cent over the year.
The housing finance approvals figures are due out on Tuesday, and should also show a sharp reversal from May's gains.
