Australian inflation cools further, easing RBA rate pressure

    • Michele Bullock is trying to slow inflation without choking off economic growth, and Australia’s 4.25 percentage points of rate increases since 2022 are at the lower end of the global tightening scale.
    • Michele Bullock is trying to slow inflation without choking off economic growth, and Australia’s 4.25 percentage points of rate increases since 2022 are at the lower end of the global tightening scale. PHOTO: REUTERS
    Published Wed, Jan 31, 2024 · 09:25 AM

    AUSTRALIA’S headline inflation cooled further in the final three months of 2023, bolstering the case for the Reserve Bank of Australia (RBA) to keep interest rates unchanged next week and sending the currency lower.

    The consumer price index (CPI) advanced 4.1 per cent in the fourth quarter from a year earlier, coming in below economists’ estimate of 4.3 per cent, Australian Bureau of Statistics (ABS) data showed on Wednesday (Jan 31). A closely watched core inflation gauge – the trimmed mean – rose 4.2 per cent, also less than forecast.

    The Australian dollar fell as much as 0.3 per cent and the yield on policy-sensitive three-year bonds extended an earlier drop on easing bets. Stocks swung to gains. Traders are now pricing in a 70 per cent chance of a rate cut in June, up from about 50 per cent on Tuesday, and fully pricing an August move.

    Central bank governor Michele Bullock is trying to slow inflation without choking off economic growth, and Australia’s 4.25 percentage points of rate increases since 2022 are at the lower end of the global tightening scale. Wednesday’s CPI data will feed into the RBA staff’s updated forecasts which will be released simultaneously with the board’s policy decision on Tuesday.

    The RBA’s November forecasts – its most recent – showed inflation holding above the top of its 2 to 3 per cent target until late 2025.

    Wednesday’s data comes as United States inflation appears to be on a fast track to return to the US Federal Reserve’s 2 per cent target, and other global central banks have also seen consumer prices cool quickly.

    Bullock is concerned about the stickiness of services prices in Australia and has warned that the central bank’s willingness to take a bit longer to return inflation to target to preserve job gains has its limits. Policymakers worry that the longer CPI remains above the 2 to 3 per cent target the more likely it is that inflation expectations will become unmoored.

    The impact of the RBA’s hikes so far has been mixed – consumers are downbeat and corporate confidence is beginning to weaken. On the flip side, the jobs market and house prices both persist in defying tighter policy.

    Today’s quarterly CPI report also showed:

    • Rent costs rose 0.9 per cent in the quarter, slowing from 2.2 per cent in the three months to September. The rate was moderated by changes to Commonwealth Rent Assistance, the ABS said.
    • Quarterly food and non-alcoholic beverage prices rose at the weakest pace since September 2021.
    • In contrast, over the past 12 months insurance jumped 16.2 per cent, making it the largest annual rise since March 2001. BLOOMBERG

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