Inflation falls, opening door for February rate cut
A Reserve Bank rate cut is on the cards for February after underlying inflation for the December quarter came in below expectations.
Core inflation has fallen to 3.2 per cent annually, opening the door for the Reserve Bank of Australia to cut interest rates at its next meeting.
The trimmed mean, which is the central bank’s preferred measure of inflation, grew at 0.5 per cent in the December quarter, the Australian Bureau of Statistics reported on Wednesday, below consensus expectations.
Also known as underlying inflation, the trimmed mean elides items with the largest price changes at either end to show a less volatile reading of price growth.
The RBA had predicted the trimmed mean to rise 0.7 per cent for the quarter in its November forecast, although a surprise drop in housing costs had substantially lowered inflation expectations since.
The headline figure rose 0.2 per cent for the quarter, causing the annual consumer price index to fall to 2.4 per cent.
A 0.7 per cent fall in housing costs, the largest single component of inflation, drove the lower-than-expected increase.
“December quarter’s rise was the same as the 0.2 per cent increase in the September 2024 quarter,” ABS head of prices statistics Michelle Marquardt said.
“These rises were the lowest recorded since the June 2020 quarter when the CPI fell during the COVID-19 outbreak when childcare was free.”
Services inflation, which had been particularly troubling the RBA, fell from 4.6 per cent to 4.3 per cent.
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The rates market had been pricing in a 63 per cent chance of a cut at the February board meeting ahead of the inflation figures release and increased those odds after the announcement.
Finance Minister Katy Gallagher said while the battle against inflation wasn’t over, significant steps have been taken.
“We’ve been making sure that the decisions we take don’t work against the RBA and their response to get inflation down, so I think the statistics speak for themselves,” she told ABC radio ahead of the data release.
“We have seen very, very substantial progress in seeing inflation come down and that’s really important, because that obviously affects how (people) manage their household budgets.”
