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Good news and not-so-good news from the latest inflation data

The Australian Economy | 29th November 2023

There’s good news and not-so-good news in the monthly CPI Indicator for October released by the Australian Bureau of Statistics this (Wednesday) morning.

The good news is that consumer prices (or at least, the prices of the roughly two-thirds of the items in the more comprehensive quarterly CPI that are included in this monthly measure) fell by 0.3% in October, after rising by 0.6% in each of August and September. That brought the annual ‘headline’ inflation rate back down to 4.9%, where it had been in July, from 5.6% in September (and compared with the peak of 8.4% in December last year).

The decline in October was aided by a 2.9% fall in petrol price, a 0.4% fall in rents, the latter reflecting the increase in Commonwealth Rent Assistance to low-income rents which took effect in late September (without which rents would have risen 0.7%), and a 12% fall in overseas holiday costs.

The not-so-good news is that the Reserve Bank of Australia‘s preferred measure of the ‘underlying’ inflation rate – the ‘trimmed mean’ (which excludes the ‘outlyers’ at either end of the spectrum of individual price changes) rose by 5.3% over the year to October, down only 0.1 pc point from September, and from the peak of 7.2% last December.

Source: ABS

Underscoring RBA Governor Michele Bullock’s observation last week that Australia’s inflation was now largely ‘home-grown’, prices of ‘non-tradeable’ items rose by 0.3% in October and by 6.0% from a year earlier: whereas prices of ‘tradeable items’ fell 1.6% in October and rose by only 2.5% over the year to October.

Australia’s ‘headline’ inflation rate is higher than that over the same period in the US (3.2%), Canada (3.1%), the UK (4.6%), and the Euro area (2.9%); while our ‘underlying’ rate of 5.3% is higher than in the US (4.0%), Canada (3.4%), the euro area (4.5%) and, over the year to the September quarter, New Zealand (5.2%), though it was below the UK (5.7%).

Note: data for New Zealand are for the year ended September quarter.
Sources: ABS, US BLS, Statistics Canada, UK ONS, Eurostat, Statistics NZ.

Despite that, Australia’s cash rate of 4.35% is lower than in all of these other economies.

Today’s data is good enough to allow the RBA to leave the cash rate unchanged at next Tuesday’s final Board meeting for the year.

But unless there’s more progress in reducing inflation in the next two months, the possibility of another rate hike at the RBA’s first Board meeting in #2024, on 6th February, can’t be ruled out.


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