Australia January consumer prices dip in the month as housing inflation slows

AUSTRALIAN consumer prices dipped month on month in January, dragged lower by a slowdown in housing costs and a drop in holiday travel, an outcome that should help reassure policymakers that inflation is heading in the right direction.

Data from the Australian Bureau of Statistics on Wednesday (Feb 26) showed the monthly consumer price index (CPI) fell 0.2 per cent in January from December, when it rose 0.8 per cent. The annual pace held at 2.5 per cent, matching market forecasts.

The trimmed mean measure of core inflation rose an annual 2.8 per cent in January, up from 2.7 per cent in December.

Analysts have cautioned that the January report only covers a portion of the full CPI basket and is concentrated on goods rather than services. Swaps continued to price just a 17 per cent probability for a follow-up interest rate cut by the Reserve Bank of Australia (RBA) in April, while a move in July has been fully priced in.

“The relatively soft CPI print for January should ease some of the RBA’s concerns about the stickiness of inflation, paving the way for it to cut rates a bit further,” said Abhijit Surya, senior Apac economist at Capital Economics.

Encouragingly, new dwelling prices, which capture new builds and major renovations, rose 2 per cent in January from a year earlier, the slowest pace since mid-2021 and far below the 22 per cent peak hit in 2022.

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Rents rose 0.3 per cent in January, while the annual pace fell to 5.8 per cent and away from a peak of 7.8 per cent reached in August 2023.

Holiday travel and accommodation also fell 6 per cent in the month.

The RBA cut interest rates by a quarter-point for the first time in over four years earlier this month, but it did warn that the prospects of further easing are not guaranteed.

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One hurdle is the surprising strength in the labour market, which could stoke cost pressures and prevent core inflation from slowing to the middle of the target band, the central bank said.

The economy has been steadily churning out new jobs for a year now, with the jobless rate holding near 4 per cent. Still, inflation has subsided from a late 2022 peak of 7.8 to 2.4 per cent in the fourth quarter of 2024, and annual wage growth has declined by one full percentage point over the past year.

“Overall, today’s data support our view that the RBA will be in a position to withdraw some more monetary restriction over the next few months,” said Surya from Capital Economics. REUTERS