The Australian Bureau of Statistics (ABS) recently published its latest Monthly Consumer Price Index Indicator, which reported annualised inflation at 7.3 per cent, up from 6.9 per cent in October.
The result caught the market by surprise, with some analysts forecasting a modest decline.
Reflecting on the figures, Robert Carnell — regional head of research, APAC at ING Economics — said Australia’s inflation challenge is “not going to be a pushover” for the Reserve Bank of Australia (RBA), which continues to tighten monetary policy to “squeeze” inflation back to its 2-3 per cent target.
The November spike, Mr Carnell said, came off the back of “outsize rises” in the price of a number of components, including food and oil prices.
But Mr Carnell has claimed these inflationary pressures could represent “death throes” for inflation in Australia, given “encouraging developments” which could put downward pressure on inflation “once this latest volatility is out of the way”.
These include a 2.4 per cent monthly reduction in the price of clothing, a mild 0.1 per cent increase in housing and housing purchases, and a 0.2 per cent increase in rent (down from 0.6 per cent in October).
“These prices tend to be much less volatile, and having softened, we could anticipate even weaker figures in the months ahead, which may help to soften any residual volatility in the other components that we still need to work through,” he said.
A decline in 10-year bond yields in response to the November inflation result was also cited as a potential indicator of positive results ahead.
“This could indicate that markets also view this as a last hurrah for inflation rather than any meaningful setback for the Reserve Bank of Australia,” Mr Carnell added.
“The same seems true for RBA expectations, where December 2023 bank bill futures have risen, signalling an expectation for lower, not higher yields.”
ING Economics’ base case is for the RBA to suspend its tightening strategy once the cash rate hits 3.6 per cent.
Mr Carnell has acknowledged the latest CPI data has put the research group’s base case at risk, and may prompt the group to revise their projection to 3.85 per cent if upcoming signals do not show signs of improvement.
“But we are not throwing in the towel just yet,” he said.
“This latest inflation data offered just enough hope that this is a temporary setback to enable us to defer that decision for a little while longer.”
