Australia’s headline inflation rate remained well within the Reserve Bank of Australia’s target band in October but the central bank is likely to want more proof price rises have moderated before it will cut interest rates.
Last month, the consumer price index was 2.1% higher than a year ago, holding steady at its lowest level since July 2021, the Australian Bureau of Statistics reported on Wednesday. That result compared with the 2.3% pace expected by economists and the 2.1% annual increase recorded for September.
The trimmed mean, or underlying inflation rate, came in at 3.5%. In September, that measure was 3.2%.
Electricity prices were down 35.6% compared to a year ago as government rebates helped drive a record fall in this measure. Transport fuel was also 11.5% lower as weaker Chinese demand and easing Middle Eastern tensions sent global oil prices lower.
Food and non-alcoholic beverages were 3.3% higher than a year earlier, in line with September’s pace of increases. Rents were 6.7% higher than for October 2023, up slightly from the annual increase of 6.6% in September.
Prior to today’s figures, both headline and underlying inflation had retreated for five consecutive months. Some bounce back was anticipated because of the mix of goods and services being measured for October and a relatively large drop for the same month a year ago affecting the baseline.
The latest data on prices will be scrutinised closely by the RBA and households hoping for an easing of the cost-of-living squeeze.
The RBA governor, Michele Bullock, who is due to give a major speech in Sydney on Thursday evening, has said the central bank watches the quarterly dataset more closely than the monthly figures.
The bank is also wary that the underlying figures are a better guide as to whether inflation is “sustainably” within its target range of 2%-3%. That said, the board may start cutting the cash rate – now at 4.35% – before the trimmed mean pace drops below 3% provided the RBA is confident of a decelerating trend.
Ahead of today’s figures, investors were rating the prospect of a 25 basis point cut in the cash rate to 4.1% as less than a one-in-10 chance when the RBA holds its final rates meeting for 2024 on 9-10 December. They view the first cut is only a certainty by the middle of 2025.
The market largely took today’s numbers in its stride. The Australian dollar was hovering at about 64.7 US cents and stocks were holding on to most of the morning’s gains of about 0.5%.
Government rebates helped take the edge off CPI increases, according to Michelle Marquardt, ABS’s head of prices statistics. Electricity prices were down 12.3% for the month alone, thanks to big federal rebates and those in states such as Queensland, Western Australia and Tasmania.
Without the increase in commonwealth rent assistance, for instance, rental increases would have been 8.1% rather than 6.7%, Marquardt said.
The cost of new dwellings and major renovations rose 4.2% from a year earlier, with new-build costs rising at the slowest annual rate since August 2021.
