The latest data from the Australian Bureau of Statistics (ABS) has revealed that the monthly Consumer Price Index (CPI) indicator rose 4.9 per cent in the 12 months to October 2023, down from the 5.6 per cent recorded in September 2023 and below the 8.4 per cent peak in December 2022.
According to the ABS, the largest contributors to October’s annual increase were housing at 6.1 per cent, food and non-alcoholic beverages (5.3 per cent), and transport (5.9 per cent).
Additionally, the annual increase for housing was below the 7.2 per cent increase in September, with new dwelling prices rising 4.7 per cent (the lowest annual rise since August 2021), as increases in the price of building materials continued to ease, which reflects improved supply conditions.
Acting ABS head of prices statistics Leigh Merrington said volatile price changes such as automotive fuel, fruits and vegetables, and holiday travel were excluded from the headline CPI to “provide a view of underlying inflation”.
“When excluding these volatile items from the monthly CPI indicator, the annual rise in October is 5.1 per cent, lower than the annual rise of 5.5 per cent in September,” Mr Merrington said.
CreditorWatch chief economist Anneke Thompson said that the monthly CPI data has shown positive signs that the Reserve Bank of Australia’s (RBA) monetary policy is “taming the inflation beast”.
“This monthly CPI release, combined with weak consumer spending and rising numbers of unemployed people, means the RBA will almost certainly hold the cash rate steady at the December meeting,” Ms Thompson said.
“This is good news for retailers and summer holiday-makers, though consumers are likely to be wary of the fact that interest rates are likely to stay high until at least Q3 2024.”
ANZ senior economist Catherine Birch said that the weak October result has increased the probability that Q4 headline CPI will “print at or below the RBA’s 1 per cent quarter-on-quarter forecast”.
“But the November data, due 10 January, will be a better signal as it will capture prices for larger shares of non-tradables and services. We continue to see the RBA on hold in December,” she said.
Commonwealth Bank of Australia (CBA) economist Stephen Wu said that the annual rate has eased below market expectations, with the October data being “very much in line with disinflationary signals from the various business surveys”.
Inflation forced the RBA’s hand
The minutes from the November monetary policy meeting revealed that the case to raise the official cash rate to 4.35 per cent centred on the “risks arising from the outlook for inflation being stronger than it had been some months earlier”.
The RBA said: “Members noted that underlying inflation in the September quarter had been higher than previously expected, inflationary pressures were evident across a broad range of consumer items, and inflation was most apparent in items for which inflation typically took longer to subside (such as services).
“Collectively, these observations implied that it would take some time for inflation to return to target.”
The RBA added that the risk of not achieving the inflation target of 2–3 per cent by 2025 had increased and found that it was appropriate that “monetary policy should be adjusted to mitigate this risk”.
“They observed that delaying such an adjustment would create a risk that a larger monetary policy response might be required in coming months, especially if inflation pressures turned out to be stronger than expected,” the board stated.
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