Australia’s sharp inflation slowdown reinforces view RBA hike-cycle is over
AUSTRALIA’S monthly inflation gauge moderated for a second straight month in November, in a welcome outcome that bolsters the case for the Reserve Bank of Australia (RBA) to leave interest rates unchanged next month.
The consumer price indicator rose 4.3 per cent from a year earlier, lower than economists’ estimate of 4.4 per cent and the smallest annual increase since January 2022, Australian Bureau of Statistics (ABS) data showed on Wednesday (Jan 10). When excluding volatile items such as fuel, fruit and vegetables and holiday travel, the annual rise was 4.8 per cent, lower than October’s 5.1 per cent.
The RBA delivered a surprise rate hike in November to take its key rate to a 12-year high of 4.35 per cent in an effort to bring inflation down to within its 2 to 3 per cent target band. The central bank then held rates in December with money market bets now implying the next move is down, not up.
The central bank will likely await fourth quarter figures due later this month, which include an expanded coverage of prices to inform its policy decision at its Feb 5 to 6 meeting.
Australian policymakers “will probably want to see inflation slowing further before declaring an end to rate hikes”, James McIntyre, economist at Bloomberg, wrote in a note last week. “Our base case is for the RBA to remain on hold but reiterate a tightening bias to keep inflation expectations contained.”
Today’s release comes ahead of a US inflation report due Thursday which is likely to show annual CPI, excluding food and energy, slowed to 3.8 per cent. US Federal Reserve officials will meet on Jan 30 to 31 after leaving their target rate steady at 5.25 to 5.5 per cent for a third consecutive time in December.
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Supermarket inquiry
Annual inflation for food and non-alcoholic beverages remained elevated across most categories, Marquardt added. That’s a headache for Australia’s centre-left government, which is already battling criticism from an electorate struggling with higher living costs and rising interest rates.
The inflation data came as Prime Minister Anthony Albanese on Wednesday announced an inquiry into whether big supermarket chains are failing to pass falling grocery prices on to consumers.
Coles and Woolworths are the two largest supermarket chains in the country with just over half the market share combined, according to Bloomberg Intelligence. Albanese said it would be “completely unacceptable” if prices for consumers failed to decrease as the cost of getting goods reduced.
The review – headed by former Trade Minister Craig Emerson – will inform a new potentially mandatory code of conduct for Australia’s food and grocery industry.
“We want to see supermarkets do the right thing by their customers,” Albanese told the Today Show.
Today’s quarterly CPI report also showed:
- The most significant contributors to inflation were housing, up 6.6 per cent; food and non-alcoholic beverages, rising 4.6 per cent; and insurance and financial services, jumping 8.8 per cent.
- Electricity prices rose 10.7 per cent in the year to November, with some of the increase partly offset by a government rebate.
- Automotive fuel “has been a significant contributor to the lower annual rise in the monthly CPI indicator over the past two months”, according to Michelle Marquardt, ABS head of prices statistics. BLOOMBERG
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