Inflation remained flat in January at a two-year low, helped by falling prices for meat and seafood, stoking hopes the Reserve Bank may bring forward interest rate cuts.

The consumer price index in January was 3.4%, the Australian Bureau of Statistics said on Wednesday. Economists predicted CPI would increase to 3.6% from December’s 3.4%.

Food and non-alcoholic beverages reported a pick up in annual inflation to 4.4% last month from 4% in December. Meat and seafood prices, though, were down 2% from a year earlier compared with a 1.9% drop in December.

Government intervention also helped reduce some of the price increases. Electricity prices, for instance, were 0.8% higher than a year ago in January, with rebates moderating the rise.

“Excluding the rebates, electricity prices would have increased 15.3% in the 12 months to January 2024,” said Michelle Marquardt, ABS head of prices statistics.

Rents continued to post large increases. The 7.4% rise in rental costs from January 2023 matched the rise reported for December, with vacancy rates remaining at or near historically low levels in some capitals.

Treasurer Jim Chalmers said rents “would have risen 9.1% without our boost to Commonwealth Rent Assistance”.

“The direction of travel is clear: inflation is moderating helped by the Albanese government’s cost-of-living policies,” Chalmers said. “Inflation is moderating in encouraging ways but we know it’s not mission accomplished because people are still under the pump.”

Monthly CPI figures can be more volatile than quarterly ones because the ABS surveys only part of the basket of goods and services. Still, they provide a snapshot of inflationary pressures in the economy.

The Reserve Bank wants to be sure inflation remains on course to return to within its target range of 2%-3% by next year and to about 2.5% by 2026. It raised its cash rate 13 times between May 2022 and November 2023 to a 12-year high of 4.35%.

It noted in the minutes from its February board meeting that goods price inflation “had declined more than expected”. However, services inflation “remained high and was still expected to decline only gradually”.

Prior to the CPI release investors estimated the chance of a cut in the RBA’s key interest rate was about 5% when the board next meets on 18-19 March, according to the ASX’s rates tracker. After a review of the central bank’s operations released last year, the RBA board will now only meeting eight times a year instead of 11.

Markets were little moved in the wake of today’s CPI figures, with the Australian dollar hovering near 65.5 US cents and the stock market holding its losses for the day of about 0.1%.

David Bassanese, chief economist at BetaShares, said “Australia’s broad disinflationary trend remained intact during January with another lower-than-expected inflation result”.

“All up, today’s CPI release should be broadly reassuring to the RBA and, on balance, reduces the risk it might consider yet another rate increases in coming months,” Bassanese said, adding the numbers reinforced his view that the central bank would be able to cut interest rates at least twice in the final months of 2024.

Besa Deda, chief economist for Westpac’s business division, said the January CPI figure means the commercial bank’s quarterly CPI forecast of 0.7% may have to be revised lower.

“We think the rate-hiking cycle has ended and today’s result is further evidence of that,” Deda said. “We continue to expect that cuts are still a second-half 2024 story because the RBA has suggested it wishes to be convinced of further progress being made on inflation.”

As households change their spending habits over the years, the ABS has to adjust the weighting given to each category to estimate how much overall prices are changing in the economy. On Wednesday, the ABS updated the basket of goods and services, bringing some of the weightings closer to pre-Covid levels.

During the pandemic lockdowns, households spent more on appliances, furniture and other equipment, including computers, and much less on travel and restaurants.

The share of goods reached 58% of the CPI index at one point, and just 42% on services. The 2024 update has revised the share to 54.5% for goods and 45.5% for services, a move that “reflects spending patterns closer to the pre-Covid-19 period”, the ABS said.

The recreation and culture group category has seen a big adjustment, rising 1.71 percentage points in the rejig. The fact more Australians headed overseas and with international airfare prices remaining elevated, the weighting of this sub-category increased 0.92pp.

Overseas arrivals and departures are now back to about 90% of pre-Covid levels, the ABS said. In January’s figures alone, holiday travel and accommodation was 7.1% cheaper than a year earlier, not far off the 9.1% year-on-year drop reported in December.

After the 2024 CPI weighting update, housing remained the largest category, accounting for 21.74% of the overall index. That was half a percentage point lower than for last year, dragged down by fewer people buying new homes.

Food and non-alcoholic beverages, with a weighting of 17.15%, were little changed from the 2023 index. Recreation and culture at 12.55% leapfrogged transport’s 11.42% to contribute the third largest weighting within the CPI index.