Rate Debate Continues

• This week’s softer CPI has reduced expectations of another RBA rate hike, but the debate isn’t over. While markets have largely priced out further tightening, a number of economists still expect one additional hike this year, citing persistent underlying inflation and the inflationary risks posed by higher energy prices.
• Brent crude slipped 1.6% overnight to trade below US$90/bbl, as shipping activity through the Strait of Hormuz showed tentative signs of improving. The move eased immediate supply concerns, although geopolitical risks remain elevated.
• Australian motorists will lose temporary fuel excise relief on Sunday, just as oil prices remain well above their pre-conflict level of around US$70/bbl. The combination could see fuel prices become a renewed source of inflation pressure over coming months.
• US economic data painted a mixed picture, with Q2 GDP rising 1.5% (vs 2.0% expected), while core PCE inflation increased just 0.1% m/m, easing the annual rate to 3.3%. Softer inflation continues to support expectations that the Fed can remain patient despite resilient underlying demand.
• Attention now turns to Australia’s Q2 Producer Price Index (PPI), which is expected to provide another read on pipeline inflation pressures following this week’s softer-than-expected CPI result.