Inflation rose by 4.3 per cent in the 12 months to November, according to the latest monthly consumer price index (CPI) indicator released by the Australian Bureau of Statistics (ABS) on Wednesday.
The November CPI increase was down from the 4.9 per cent rise in October and marked the smallest annual increase since January 2022.
The most significant contributors to the November annual increase were housing (+6.6 per cent), food and non-alcoholic beverages (+4.6 per cent), insurance and financial services (+8.8 per cent), and alcohol and tobacco (+6.4 per cent).
“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation,” said Michelle Marquardt, ABS head of prices statistics.
“When excluding these volatile items from the monthly CPI indicator, the annual rise in November was 4.8 per cent, lower than the annual rise of 5.1 per cent in October,” Ms Marquardt said.
Housing rose 6.6 per cent in the 12 months to November, up from the 6.1 per cent annual increase in October. New dwelling prices rose 5.5 per cent over the year, reflecting higher labour and material costs.
Rent prices rose 7.1 per cent in the 12 months to November, reflecting low vacancy rates and a tight rental market.
Electricity prices rose 10.7 per cent in the 12 months to November, reflecting increases in wholesale prices from annual price reviews in July 2023. Electricity price rises have been partly offset by the introduction of the Energy Bill Relief Fund rebates for eligible households from July 2023.
Food and non-alcoholic beverages rose 4.6 per cent in the 12 months to November, down from the 5.3 per cent annual increase in October.
First rate cut in June?
Commenting on the latest inflation data, AMP’s chief economist Shane Oliver said: “The bottom line is that inflation is falling faster than expected”.
“Today’s data is consistent with the cash rate having peaked and we continue to expect the first rate cut in June with the cash rate falling to 3.6 per cent by year end,” Dr Oliver said.
AMP expects the December monthly inflation indicator to show inflation falling to 3.3 per cent year-on-year (YoY), bringing Australian inflation down to near the levels currently being seen in the US and Europe.
“Much has been said about higher Australian inflation data relative to our global peers. However, Australian inflation peaked three to six months after our major peers, so it’s only natural that the decline in inflation is also occurring later than our peers – and in fact, it is still following the same trajectory,” said Dr Oliver.
“We expect that inflation for December quarter 2023 will be comfortably under the RBA forecast of 4.5 per cent YoY, consistent with it leaving the cash rate on hold at the next RBA meeting and rate cuts from mid-year.”
Similarly, HSBC’s Paul Bloxham said that although the official quarterly CPI measure for Q4 2023, due to be published on 31 January, could still deliver some surprises, Wednesday’s figures bolster what is already a fairly strong case that the RBA will hold its cash rate steady in February.
However, the chief economist also presented an alternative perspective, cautioning that the data indicates a gradual decline in inflation, which still remains significantly above the RBA’s target band of 2–3 per cent.
“We expect that the RBA will remain concerned that although inflation has fallen well below its peaks, the last leg in this process, of getting it to fall back into its target band, may still prove to be challenging and will take some time,” said Mr Bloxham.
“Our central case is that inflation falls only slowly and that the RBA is still more likely to have a hawkish, rather than a dovish or neutral tone, when it meets in February. We see the RBA as likely to remain on hold through 2024, with cuts not arriving until early 2025.”
It’s interesting that the higher rates of inflation appear to exist in the more highly regulated sectors of the economy. Make of that what you will as the government “addresses the cost of living crisis”.
At what time ever have economists ever agreed