Reporter's view: Rate cut not expected for months as inflation remains sticky
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Reporter's view: KPMG chief economist Brendan Rynne says that any hopes of a rate cut in the early part of 2025 are fast fading.
"There are a number of standouts in the data that suggest there is likely to be a stickiness in core inflation," he said, pointing to rents in particular, which is a major contribution to the overall inflation measure.
This is a stark turnaround from only a few months ago when economists were expecting February 2025 for a rate cut. Rynne said there’s still some arguments for this to happen, with weakness in the economy and low business investment and household consumption.
However, he said it’s more likely that “high government spending, elevated population growth, limited increases in the stock of dwellings and tightness in the labour market … will all combine to see the first rate cut of 2025 pushed back to around mid-year”.
But he said the figures may “slightly overstate the true picture” due to skewing in the monthly series measurements compared to the more robust quarterly dataset.
EY chief economist Cherelle Murphy also thinks the RBA will be on hold "for several months yet" with the incoming Trump administration in the US "another potential hurdle" in the inflation fight.
Meanwhile, AMP economist My Bui is also concerned about stickier inflation, but is sticking to a February rate cut prediction while noting "there are certainly more risks leaning towards a later start to the cutting cycle".
Despite the concerns from economists, Treasurer Jim Chalmers said in a statement the result was "another really encouraging sign" that government policies are working to bring down inflation.
"Inflation is back in the band, our back‑to‑back surpluses are helping, and we’re rolling out responsible cost-of-living relief which is making a difference," Chalmers said.
But what Chalmers did not mention is that the central bank has said it will focus on the trimmed mean in order to look through temporary improvements in the headline figure due to government subsidies.
Monthly inflation indicator rises 2.1% over the year to October
The news: The consumer price index indicator increased 2.1% in the 12 months to October. Inflation on an annual headline basis remains at its lowest level since July 2021.
The numbers: Annual trimmed mean inflation was 3.5%, up from 3.2% in September but at a similar level to August.
The headline figures were largely down due to significant drops in electricity and automotive fuel prices of 35.6% and 11.5% respectively. Energy bill relief at a federal and state level were the driving force for the lower electricity costs.
Rents increased 6.7% over the year, with increased Commonwealth Rent Assistance putting a lid on the price rises. Had this not been in place, rents would have been up 8.1%.
Fruit and vegetable costs increased 8.5%.
The context: The Reserve Bank meets on 9 and 10 December for its final rate decision of 2024 and inflation will be front of mind. The RBA is focused on trimmed mean inflation to strip out the effects of government support.
However, the monthly dataset is not as comprehensive as the quarterly inflation figures. Economists expect the central bank to stay on hold until two quarterly prints show underlying inflation is heading back to the target band sustainably.
What they said: "The falls in electricity and fuel had a significant impact on the annual CPI measure this month," ABS head of prices statistics Michelle Marquardt said.
"When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding volatile items and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending."
The source: Australian Bureau of Statistics
