The very mild 0.1% increase in the final stage QII PPI together with the low (0.4% and 2.4%pa) QII CPI readings last week indicate that domestic inflationary pressures remain reasonably well contained. It gives the RBA room, in our view, to cut the cash rate to 2.50% next week.
The PPI measures upstream inflationary pressures (predominantly for goods) faced by producers in the commodities, intermediate and finished product stages. Note that goods inflation remains quite low on the PPI and CPI measures. But the inflation story in the local economy has revolved around services prices which, judging by the non-tradables CPI measure, are running at 4.3%pa. The CPI’s non-tradables category is predominantly domestically produced services like health, transport, education, insurance, utilities and financial services.
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