Prices continued to rise in the June quarter although at a slightly slower pace than expected, leading some to argue the Reserve Bank will avoid a supersized rate hike when it meets next week.

The consumer price index rose 6.1% in the three months to June compared to a year ago, the second highest increase since 2000 after the blistering report in the March quarter. Fuel and the cost of new dwellings led the increases. Trimmed mean inflation, the Reserve Bank’s preferred measure, increased 4.9%, the highest since records began in 2003.

Headline inflation came in slightly below the median forecast of 6.3%. The ASX jumped 0.4% on the news to close the day up 0.2% as investors bet the fresh data would allow the Reserve Bank to steer away from a 0.75% hike at its meeting next Tuesday.

“While there has been debate about the need for a 75-basis point hike in Australia, we think this is unnecessary as the inflation data is not out of control and it would create too much potential downside for consumer spending,” says Diana Mousina, senior economist at AMP.

Futures markets pared back interest rate expectations in response, with the implied cash rate for December falling to 3.2% from 3.4%. Bonds rallied and yields fell across the curve.

Here's 6 charts from Wednesday's inflation data dump.

Not since Howard

The last time prices were this high followed the introduction of the Goods and Services tax (GST) in July 2000 by John Howard.

The Reserve Bank’s preferred measure hit 4.9%, the highest level on record as price increases seep through the economy.

AMP analysis shows 65% of CPI categories had a price rise of more than 3% annually, compared to 56% last quarter. The Reserve Bank targets inflation of between 2% and 3%.

It could be worse

Australian inflation remains below the pace underway in Europe and the United States.

The disruption to energy markets following Russia’s invasion of Ukraine has hit Europe and the United Kingdom especially hard. Motor fuel in the UK rose 42% in June versus a year ago, versus 32% here.

Food-related categories in the US and UK jumped roughly 10% over the year to June, almost double the 5.9% recorded in Wednesday’s CPI.

A familiar story

Snarled supply chains combined with flooding up and down the east coast help explain some of the big shifts.

Automotive vehicles and spare parts rose as the sector continues to struggle with semiconductor shortages and on-off covid disruptions. Strong demand and supply chain problems help explain the continued price growth for household appliances.

Meanwhile, flooding on the east coast led to another big jump in fruit and vegetable prices.

But is some of the heat fading?

The pace of increase slowed for roughly half the broad categories tracked by the ABS. Health, transport and food and beverages all rose at a slower pace compared to a quarter earlier.

Automotive fuel rose 4.2% in the three months to June, down from 11% in the first quarter.

And some argue that more help could be on the way over the coming months as tangled supply chains reorder and flood damage heals.

“Some of the forward looking indicators around inflation show a slowing in price growth,” says Mousina.

“Shipping, cargo and air freight costs have been declining for months, commodity prices have declined for agricultural and metals prices but gas prices continue to rise and the disruption to supply of fresh food from Australian flood should start to ease.”

Mousina expects prices to peak around 7% next quarter before declining to the 4% mark by late 2023.

Look to oil

Australia is the sole G20 member—a group that includes Indonesia, Mexico and South Africa—to publish inflation quarterly instead of monthly. The delay means recent declines in commodity prices aren’t reflected in the data.

Changes in international oil prices drive the bulk of local petrol prices but with a two-week lag. Much of the decline in other commodities could take weeks or months to flow through the economy.

However, it cuts the other way too. Retail electricity bills lag wholesale prices by several months due to fixed contracts and many expect sharp increases over the next quarter.

The same goes for rents, which tend to pick up long after goods prices. Rents in Sydney and Melbourne rose 0.4% and 0.2%, respectively, the second consecutive quarter of rises.

Caveat emptor

Those shopping for a new wardrobe are in for a shock. Freight costs saw the price of clothes jump, especially for women, according to the ABS.