Inflation cools to 4.9 per cent ahead of December rates call

Jack Quail NCA NewsWire
In welcome news for borrowers, price pressures eased in October ahead of the Reserve Bank’s final rates call for 2023. NCA NewsWire / Nicki Connolly
Camera IconIn welcome news for borrowers, price pressures eased in October ahead of the Reserve Bank’s final rates call for 2023. NCA NewsWire / Nicki Connolly Credit: News Corp Australia

Households are almost certain to be spared another rate rise when the Reserve Bank’s board convenes for its final meeting of 2023 next week after inflation eased in October.

The latest consumer price index figures, released by the Australian Bureau of Statistics on Wednesday, showed annual inflation eased to 4.9 per cent in October, after prices grew by 5.6 per cent in the year September.

With the result undershooting economists’ expectations of a 5.2 per cent increase, the likelihood of a pre-Christmas rates pause is almost certain.

Taking out volatile items including petrol, fruit, vegetables and holiday travel, underlying inflation also fell sharply in October, down 5.1 per cent. Underlying inflation was 5.5 per cent in September.

Speaking at a central banking conference in Hong Kong on Tuesday, RBA governor Michele Bullock said the central bank would need to be “a little bit careful” with any further monetary tightening.

“We want to make sure that we keep inflation under control, and we bring it back down to our band, but we also need to make sure we do that in the context of not imposing on the economy too much and raising the unemployment rate so much,” Ms Bullock said.

While markets were pricing just an 11 per cent chance of a rate hike on December 5 ahead of the data release, there is a 68 per cent chance of a hike to 4.6 per cent by June 2024.

The surge in the Aussie dollar, which touched US67c briefly in offshore trading on Tuesday, has also assisted the RBA’s inflation fighting efforts.

Camera IconBorrowers are set to be spared a pre-Christmas rate hike as inflation eased faster than expected. NCA NewsWire Credit: News Corp Australia

HSBC chief economist Paul Bloxham said the lower-than-expected inflation data would force the RBA to put rates on hold in December.

“Our view is that, having hiked in November, and knowing that the cash rate is above neutral and already working to slow the economy, the RBA will now be reluctant to move in back-to-back months,” Mr Bloxham said.

Mr Bloxham added that the that the central bank would likely be more cautious and patient in the months ahead.

“Today’s softer CPI print, as well as yesterday’s weaker retail figures and some signs of a cooling housing market, all add up to the RBA being on hold next week,” he said.

EY chief economist Cherelle Murphy said “it’s clear the 13 rate hikes are working; what is less clear, is whether inflation is falling fast enough”.

“It’s likely that the Reserve Bank will leave the 4.35 per cent cash rate on hold when the board meets next week, but the data over summer will be most important for the Reserve Bank’s next move in February,” Ms Murphy said.

Camera IconA combination of week retail sales, easing inflation and cooling prices could see the RBA keep rates on hold next month. Dan Peled / NCA NewsWire Credit: News Corp Australia

But analysts warned the ABS monthly CPI indicator did not provide a full picture of the price pressures across the economy.

Due to an overrepresentation of the prices of goods, the indicator did not fully account for still-high services inflation, so it would be of little use in gauging the domestic sources of inflation the RBA is now focused on.

The easing of goods price inflation, which has fallen as supply chain bottlenecks eased and consumers cut back on discretionary items, was reflected in the 1.5 per cent decrease in clothing and footwear prices in the year to October.

A drop in fuel prices, which fell to 8.6 per in October, subtracted 0.3 percentage points from headline CPI, as the reinstatement of the full fuel excise in September 2022 was no longer recorded in the annual figures.

Camera IconWith consumers cutting back on discretionary spending and supply chain bottlenecks easing, the prices for clothing and footwear fell. Dan Peled / NCA NewsWire Credit: News Corp Australia

Electricity prices also eased to 10.1 per cent, well below their peak of the 18 per cent increase in the year to September, with government rebates taking the sting out of higher power bills.

Despite the progress, services inflation, which the RBA has warned is much “stickier”, remained stubborn, as cost pressures, including higher wages, were passed through to consumers.

Prices for insurance rose by 8.6 per cent in the 12 months to October, while rents jumped 6.6 per cent over the same period, as a surge in migration and dwindling housing stock pushed costs higher.

Speaking in question time, Treasurer Jim Chalmers claimed the figures demonstrated the government’s success in putting downward pressure on inflation.

“Without our plan, electricity prices would have gone up 18.8 per cent between June and October, not 8.4 per cent,” Dr Chalmers said, citing ABS analysis.

But shadow treasurer Angus Taylor said Australians were still feeling pain in their hip pocket as a result of the “distracted” government.

Originally published as Inflation cools to 4.9 per cent ahead of December rates call

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