Australia’s inflation rate comes in lower than expectations in February at 3.4%
Inflation has held steady for the second month in a row, as cheaper meat and seafood helped offset increases in rents and automotive fuel.
The monthly index of consumer prices rose only 3.4% in the year to February, stabilising near the pace of the increases in January and December, the Australian Bureau of Statistics said on Wednesday. Economists had predicted February’s CPI would come in at 3.5%.
Excluding volatile items such as fresh produce and fuel, inflation fell from 4.1% in January to 3.9% last month.
Holiday and accommodation prices continued to fall, offsetting price rises in other categories. The category’s prices fell 1.3% in the year to February, falling more slowly than the two previous months, reflecting boosts from Taylor Swift’s blockbuster Eras tour.
“Although Taylor Swift performances saw hotel prices rise in Sydney and Melbourne, elsewhere accommodation and air fares fell in February due to the end of the peak travel during the January school holiday period,” the head of price statistics at the ABS, Michelle Marquardt, said.
The monthly inflation figures are less comprehensive than the quarterly numbers but still offer an indication of how much interest rates, at a 12year high, are squeezing demand in the economy.
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The Reserve Bank of Australia’s governor, Michele Bullock, last week said the central bank needed “greater confidence that inflation will return to the target band in a reasonable timeframe and will stay there” before it would cut its cash rate.
David Bassanese, a senior economist at Betashares, said it was “way too early to know” whether inflation was trending down at a faster or slower pace than the RBA expects.
Ahead of Wednesday’s inflation data, investors were pricing in a 25 basis point cut in the cash rate to 4.1% by October, according to the ASX rates tracker.
After the ABS announcement, the ASX 200 bumped 0.25% higher and the Australian dollar fell slightly, as investors factored in the potential for a RBA rate cut a little sooner than before.
Moderation in the inflation rate was helped by continued falls in meat and seafood prices, which declined 2% in the year to February after farmers sold off livestock.
Along with a fall in fruit and vegetable prices of 0.5%, this helped slow the pace of food price rises from 4.4% in January to 3.6% in February.
The biggest mover was insurance prices with an increase of 16.5% in the 12 months to February, the highest annual price jump since the ABS began calculating the monthly CPI in 2022.
Rent price rises also remained high thanks to a persistently tight market, with growth ticking up to 7.6% annually from 7.4% in January, though the government says its rent assistance boost has restrained the increase.
“Rent [rises] over the last year was 7.6%, too high, but it would have been 9.2% without our budget,” treasurer Jim Chalmers said.
Energy prices have eased thanks to electricity prices growing only 0.3% in February, down from an 0.8% rise in January, with prices expected to fall later this year. Gas prices also turned around in the year to February, falling 2.4% compared with an annual rise of 8.5% in December, as households continued to ditch fossil fuels.
The monthly data shows inflation is tracking towards the RBA’s target range of 2% to 3%, according to Moody’s Analytics economist Harry Murphy Cruise.
“Partial data suggests inflation is on track to ease to 3.35% year on year across the [March] quarter of this year, down from 4.1% in the December quarter,” he said.
The RBA indicated it expected inflation to ease to 3.3% by June in its statement on monetary policy forecasts in February.
However, stickiness in the underlying annual inflation measure, up from 3.8% in January to 3.9% in February, showed the economy was still on a tightrope, according to the Grattan Institute’s chief executive, Aruna Sathanapally.
“This is broadly in line with the RBA’s forecast but the government will need to remain cautious about any spending that injects extra heat into the economy,” she said.
Australia’s inflation battle may also grow more difficult as the headline rate comes closer to target, as experienced in the US, in part because rising costs in service industries are becoming persistent.
“We know from overseas that it’s a bumpy ride, and we also know that services inflation is still elevated and that’s proving difficult to get down,” Bullock said last week.
The RBA will make its next decision on interest rates on 7 May, after the release of March quarter inflation data and only a week before the release of this year’s federal budget.