Australia’s inflation data now tells two quite different stories

The Consumer Price Index rose 4.0 per cent over the year to August, up sharply from 3.5 per cent in July. But the jump does not mean domestic inflation suddenly accelerated in August.

Quite the opposite.

ABS data show tradable prices — those most exposed to international markets — rose 1.3 per cent during August. Non-tradable prices, which are predominantly influenced by domestic conditions, were unchanged.

The contribution data make the distinction even clearer. Tradables added around 0.43 percentage points to the CPI during August, while non-tradables subtracted around 0.02 points. Total CPI increased by about 0.42 points.

Automotive fuel alone contributed 0.46 percentage points — more than the entire CPI increase. Fuel prices jumped 14.8 per cent as higher global oil prices coincided with the final unwinding of the temporary reduction in Commonwealth fuel excise.

But look at inflation over twelve months and the picture reverses.

Non-tradable inflation is running at 4.5 per cent, compared with 2.9 per cent for tradables. More importantly, non-tradables contributed about 2.97 percentage points of Australia’s 3.96 percentage-point annual CPI increase. That is roughly three-quarters of total inflation.

Housing illustrates the problem. Housing prices are 5.7 per cent higher over the year, including a 5.4 per cent rise in new dwelling costs and continued increases in rents. Education, health and a range of domestic services are also recording elevated price growth.

Trimmed mean inflation therefore tells a useful story. It was only 0.2 per cent in August, but remains 3.6 per cent over the year — unchanged for three consecutive months and still above the RBA’s target band.

So the August inflation shock was principally imported and policy-related. The broader inflation problem is not.

Australia effectively has two inflation problems operating simultaneously: a global energy shock pushing headline inflation higher, layered over persistent domestic price pressures that have yet to return to target.

That distinction matters far more for monetary policy than the 4.0 per cent headline number alone.