Big relief: Diners at a cafe in Strand Arcade in Sydney, Australia. If the fourth quarter inflation report, due in late January, paints a similar picture for consumer prices, markets may bring forward expectations of the first rate cut from the RBA to June. — Bloomberg
SYDNEY: Australia’s inflation slowed to a near two-year low in November and core inflation also eased sharply, a softer-than-expected result that reinforced market expectations interest rates would not need to rise any further.
Data from the Australian Bureau of Statistics showed its monthly consumer price index (CPI) rose at an annual pace of 4.3% in November, the slowest pace since January 2022.
That was down from 4.9% in October and under market forecasts of 4.4%.
For the month, the CPI rose 0.3%.
A closely watched measure of core inflation, the trimmed mean, rose an annual 4.6%, down sharply from 5.3% in November, a major relief for policymakers who had forecast the gauge to fall to 4.5% by December.
The CPI excluding volatile items and holiday travel slowed to 4.8%, from 5.1%.
“The fall in the trimmed mean and the core measure, below 5%, confirms that the disinflation narrative remains firmly in place and expectations of Reserve Bank of Australia (RBA) rate cuts in 2024,” said Tony Sycamore, market analyst at IG.
He said that if the fourth quarter inflation report, due in late January, paints a similar picture for consumer prices, markets could bring forward expectations of the first rate cut from the RBA to June.
Market reaction to the data was muted as liquidity is still thin in the new year.
The Australian dollar was flat at US$0.6687, while three-year-bond futures gave up three ticks to 96.30 after the data.
Futures markets still imply almost no chance of the RBA tightening policy further, while pricing in relatively modest 50 basis points of easing for all of 2024.
The RBA has already raised interest rates by 425 basis points to a 12-year high of 4.35% since May 2022 to tame runaway prices. It also left the door open to further tightening if necessary to meet its annual inflation target of 2% to 3%.
Governor Michele Bullock has warned of increasingly homegrown and demand-driven price pressures, even as inflation has retreated from its near 8% peak in late 2022.Indeed, rents are still a source of inflationary pressures as rent inflation accelerated to 7.1% in November from 6.6% the previous month. Electricity prices rose by a brisk annual rate of 10.7% in November.
Insurance prices rose 16.3% in November from a year ago, up from 14.7% in October. — Reuters
