An inflationary mixed bag

**Steph Chalmers** (0:00)
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**SPEAKER_2** (0:09)
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**Carrington Clarke** (0:37)
Well, we've got them. Hot off the press, the latest CPI numbers, and they show headline inflation easing, thanks in part to falls in fuel prices. But the trimmed figure, which helps to measure underlying inflation, came in hotter than the previous month. So where does this leave the RBA on the question of where to next on interest rates? Welcome to ABC Business Daily.
I'm Carrington Clarke.

**Steph Chalmers** (1:04)
And I'm ABC Business Reporter, Steph Chalmers.

**Carrington Clarke** (1:07)
Steph, thank you for joining me again for Inflation Figures. It's nice that they provide the monthly to us now, so we get this interaction once a month.

**Steph Chalmers** (1:14)
Feeling a bit of deja vu here, I have to say.

**Carrington Clarke** (1:16)
A little bit of deja vu. But this is critically important data, isn't it, for where to next for interest rates. A lot of forecasts before we get to this day from different economists.
And you described it, Steph, as everyone wins a prize this time around. This is quite dense data, but most people could probably point to something which accords with what they had forecast.

**Steph Chalmers** (1:42)
Yeah. I mean, it's early days post the data coming out less than an hour, but so far I haven't seen anyone taking the mark and rewriting what they forecast, partly because, as you say, there's a couple of numbers here and they came in in varying directions. So we've got the headline inflation data, which now comes out monthly, as you say, and then the monthly move is translated to an annual rate. So that's probably the number that grabs the most attention. That had been predicted to decline in the month, so the consumer price index had been predicted to fall in the month. That came through. It had been tipped to fall by 0.4 percent. It actually fell slightly more than that, 0.7 of a percent. And that saw the annual headline inflation rate cool more than had been forecast. So it had been forecast to fall to 4.2 percent, and it actually fell to 4 percent. So you'd think, hey, good news there. But this, of course, includes some items that are quite volatile, particularly at the moment, things like the fuel price, which we know are being driven by some factors.
You know, beyond the realm of normal price movements, we have things like the fuel excise and the volatility in oil prices going on. So that's why we have that trimmed mean figure, the underlying inflation figure that is focused on quite a lot, that lops off the biggest price moves in either direction. So it's previously been when the fuel price was rising really rapidly, that would be lopped off because it was one of the biggest price moves in terms of prices rising. Now we've seen fuel prices come back quite dramatically from where they were. So it's being lopped off the trimmed mean figure.
That's where we saw the trimmed mean figure actually rise more than expected. So it had been predicted to come in at 3.5 percent, annual rate in May it actually rose to 3.6 percent. So that is seen as actually a sign.

**Carrington Clarke** (3:42)
And importantly, increasing from the previous month, which is a 3.4 percent.

**Steph Chalmers** (3:46)
So it had been tipped to increase and it increased more than had been forecast. So while the headline figure eased more than forecast, the underlying figure increased more than forecast. And that's kind of an indication that perhaps that while that fuel price inflation has come off, we're starting to see it creeping in in other areas of the economy.

**Carrington Clarke** (4:07)
People are obviously very focused on this data because what it means for interest rates, that's how we opened this. And people are also fixated on which is the more important measure for the Reserve Bank. Now, from the Reserve Bank, we know that they are still targeting that headline rate. So when we talk about the target for inflation between 2 and 3 percent, it is the headline figure overall that that's what they're taking into account because that is what people are really feeling.