BNY’s Geoff Yu reports that Australia’s Melbourne Institute inflation gauge fell again in June, with both headline and trimmed mean measures easing. Yu notes that this points to more established disinflation and suggests the Reserve Bank of Australia may need to move away from its neutral stance, as current market pricing for further tightening looks vulnerable if softer inflation persists.

Disinflation undermines tightening bets

"Australia’s Melbourne Institute inflation gauge fell 0.4% m/m in June, led by lower fuel prices."

"The drop follows a 0.3% decline in May, marking a second consecutive month of price weakness."

"The y/y rate slowed to 3.9% from 4.4%, while the trimmed mean measure fell 0.5% m/m after dropping 0.1% previously, taking its y/y pace down to 2.8% from 3.6%."

"The snapshot points to broader easing in both headline and underlying price pressure, suggesting disinflation is becoming more established."

"That could force the RBA to shift away from its neutral stance, with market pricing of 35bp of tightening by year-end now looking increasingly vulnerable if softer inflation momentum persists."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)