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Inflation gauge throws Melbourne Cup Day curve ball

  •  
By Charbel Kadib
  •  
3 minute read

The latest inflation indicator has pointed to a marked decline in cost pressures ahead of the Reserve Bank’s widely anticipated hike to the cash rate.

According to the Melbourne Institute’s latest Monthly Inflation Gauge – which assesses price movements across Australia’s capital cities – cost pressures eased for the first time since August 2022, with headline inflation down 0.1 per cent in October.

Trimmed mean inflation was flat in October after growing just 0.1 per cent in September.

In annualised terms, headline inflation eased to 5.1 per cent, down 0.6 percentage points from 5.7 per cent in the 12 months to 30 September.

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Trimmed mean inflation eased to 5 per cent over the same period, down from 5.1 per cent in September.

According to the Melbourne Institute analysis, the October result was underpinned by price falls for holiday travel and accommodation (down 3 per cent) and non-durable household products (down 2.3 per cent), partly offset by an increase in alcohol and tobacco and insurance and financial services costs.

The Melbourne Institute data suggests disinflation accelerated in the first month of the final quarter of the 2023 calendar year after showing signs of stickiness in the third quarter.

This follows the upside surprise in the Australian Bureau of Statistics’ (ABS) consumer price index (CPI), which reported a 1.2 per cent increase to both headline and trimmed mean inflation over the September quarter.

This could complicate the Reserve Bank of Australia’s (RBA) November monetary policy decision, with markets bracing for another 25 bps hike off the back of the upside surprise in the CPI print.

All four major banks have forecast a hike, with some economists, including Deutsche Bank chief economist Phil O’Donaghoe projecting back-to-back increases in both November and December.

The RBA’s own rhetoric has supported these expectations, with minutes from its October meeting citing a “low tolerance” for slower progress to the 2–3 per cent inflation target.

RBA governor Michele Bullock has also stressed the central bank “would not hesitate” to lift the cash rate further in the event of a “material rise” to its inflation projections.

The RBA had forecast trimmed mean inflation to ease to 4.9 per cent over the 12 months to 30 September 2023, 0.3 percentage points below the ABS print of 5.2 per cent and 0.1 percentage point below the Melbourne Institute’s figure.

The RBA is set to issue an update to its macroeconomic forecasts in its next statement on monetary policy.

At present, the Reserve bank is expecting inflation to return to the 2–3 per cent target range by the end of 2025.

Inflation gauge throws Melbourne Cup Day curve ball

The latest inflation indicator has pointed to a marked decline in cost pressures ahead of the Reserve Bank’s widely anticipated hike to the cash rate.

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