Australia’s monthly CPI holds at 2.1% in October

AUSTRALIA’S consumer price inflation rate stayed at a three-year low in October as government rebates drove electricity and rent prices down, though core inflation picked up in a sign of lingering cost pressure elsewhere.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index rose at an annual pace of 2.1 per cent in October, unchanged from September and below market forecasts of 2.3 per cent.

From the month earlier, it fell 0.3 per cent.

The trimmed mean - a closely watched measure of core inflation - rose to an annual 3.5 per cent from 3.2 per cent in September, taking it further above the Reserve Bank of Australia’s 2 per cent to 3 per cent target band and making it a hurdle to cuts in interest rates.

The report for October - the first month of the quarter - does not contain price updates on a range of services that are more of concern to the central bank, thus it is likely to have limited bearing on monetary policy. The bank has said monthly reports tend to be volatile.

Markets have not fully priced in a cut in rates until May next year, with a move in December at just a 14 per cent probability.

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The Australian dollar was little changed at US$0.6474 after the data, while three-year bond futures held earlier gains, up two ticks at 96.02.

The central bank has kept interest rates steady for a year now, judging that the cash rate of 4.35 per cent - up from a record-low 0.1 per cent during the pandemic - is restrictive enough to bring inflation to its target band while preserving employment gains.

The RBA has said it would need to observe more than one good quarterly inflation outcome - a reason why markets are only pricing in a 27 per cent chance of a cut in February after the release of the fourth-quarter CPI report.

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Again, electricity subsidies from the federal and state governments lowered prices by 12 per cent in the month, while rents also fell 0.3 per cent from September thanks to government relief.

When volatile items and holiday travel were excluded, the annual CPI fell to 2.7 per cent from September’s 3.0 per cent. REUTERS