Inflation to remain at the low end of target band

With the Monthly Consumer Price Index (CPI) indicator due for release later today, bank economists are expecting inflation to once again return well within the Reserve Bank of Australia’s (RBA) target due to recent declines in prices for fuel, electricity, and rents.

Commonwealth Bank of Australia’s (CBA) senior economist Stephen Wu said they expect annual headline inflation to remain at 2.1 per cent in October, “near the bottom of the RBA’s [target]”.

“We expect only a small fall in prices for some household goods ahead of November’s sales events. Less favourable bass effects, however, should mean some mixed outcomes for the various core measures of inflation,” Wu said.

“We expect CPI excluding volatile times & holiday travel [to moderate] further in October. But we anticipate the ‘Annual trimmed mean’ measure to have ticked up to 3.4 per cent from 3.2 per cent. This is largely owing to annual base effects becoming less favourable.”

He further said, however, that this does not reflect a re-acceleration of inflationary pressures in the economy and would put the monthly measure “closer to the quarterly trimmed mean CPI increase of 3.5 per cent/yr, which remains the RBA’s benchmark for underlying inflation in the economy”.

NAB’s group economics team also foresees another fall in electricity prices to leave the year-ended inflation rate at 2.1 per cent year on year, while expecting the annual trimmed mean measure to move higher to “around 3.3 per cent from 3.1 per cent”.

Meanwhile, ANZ’s economics team said: “We expect annual inflation to edge up 0.2ppt to 2.3 per cent y/y, while the ‘all groups excluding volatile items (fuel and fruit & veg) and holiday travel’ figure is forecast to ease 0.1ppt to 2.6 per cent y/y.

“The November RBA Board meeting minutes contain some guarded references that could imply the Board is opening the door to a policy easing.

“That said, any easing in early 2025 would require a step down in trimmed mean inflation, which in turn makes this coming week’s CPI indicator of interest.

“Given the limitations in the monthly indicator, especially in the first month of each quarter, a strong picture of Q4 CPI trends won’t come until the release of the November data, which is due on 8 January.”

Westpac’s senior economist Justin Smirk said that while energy rebates have had a meaningful impact on the CPI, they do not have any impact on core inflation.

“At this stage, the rebates are set to expire, so June 2025 will see the last Commonwealth energy rebate of $75 while the lump sum of $1,000 from the Qld government is likely to have been fully used by the majority of households,” Smirk said.

“As such, we expect electricity prices to jump 20 per cent in September 2025 and by December 2025 the annual pace of electricity inflation will be 40 per cent/yr, a big jump up from the –23 per cent/yr pace forecast for December 2024.

“This will see the CPI jump 1.1 per cent in September 2025 and the annual pace will be back at 3.3 per cent/yr by December 2025 compared to a forecast low of 2.0 per cent/yr at June 2025.

“If the rebates are excluded, we forecast the annual pace of CPI inflation to hit a low of 2.3per cent/yr at June 2025 before lifting modestly to 2.5 per cent/yr at December 2025. The unwinding of the rebates is forecast to add 0.8ppt to headline inflation in the year to the December quarter 2025.”

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Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

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