Rate relief on horizon
Inflation drops to two-year low, driven by falling petrol, food prices
Falling petrol and food prices have helped inflation slow to its slowest pace in two years of 4.3 per cent in November, raising the prospects that the Reserve Bank won’t need to lift interest rates again.
The Australian Bureau of Statistics reported that the monthly Consumer Price Index indicator rose 4.3 per cent in the year to November compared to 4.9 per cent in October.
This was less than the 4.4 per cent markets had expected and down from the peak of 8.4 per cent in December 2022. It was the lowest reading since 4 per cent in January 2022.
IG market analyst Tony Sycamore said with inflation now firmly below 4 per cent the disinflation narrative remained firmly in place and could see the RBA cut rates sooner.
“If December quarter inflation data scheduled for release at the end of the month paints a similar picture, there is a good chance that expectations of the RBA’s first rate cut are brought forward to June, with a third rate cut added into the rates market for 2024,” he said.
The RBA, led by governor Michele Bullock, wants to return inflation to 2-3 per cent and warned it would lift rates again if levels were not falling as fast as anticipated.
Its Statement on Monetary Policy, published in November 2023, forecast inflation would drop to 4.25 per cent by December 2023 and hit the top end of the target in December 2025.
Key drivers for cooling inflation were food and non-alcoholic beverages, which fell from 5.3 per cent in October to 4.6 per cent, while automotive fuel was 2.8 per cent compared to 8.6 per cent in the prior month and 19.7 per cent in September.
“This has been a significant contributor to the lower annual rise in the monthly CPI indicator over the past two months,” ABS head of prices statistics Michelle Marquardt said.
Gas was the biggest drag as prices rose 12.9 per cent in the year and electricity increased, reflecting increases in wholesale prices from annual price reviews in July 2023.
“Electricity prices have risen 8.8 per cent since June 2023. Excluding rebates, electricity prices would have increased 19.0 per cent over this period,” Ms Marquardt said.
Also key contributors, alcohol and tobacco firmed 6.4 per cent over the year, rents increased 7.1 per cent and financial services rose 8.8 per cent.
Treasurer Jim Chalmers said at a media conference afterwards that government policies in offering support for power bills and rent were putting downward pressure on inflation.
“We are making progress in this fight against inflation, but the fight against inflation is not over yet,” he said.