The consumer price index (CPI) rose 2.1 percent in October, marking its slowest growth in three years. However, annual average inflation, which excludes volatile price movements, climbed to 3.5 percent, from 3.2 percent the previous month, indicating a slower-than-expected decline in underlying inflation. underlying.
AMP’s My Bui commented on the data, explaining that the Reserve Bank (RBA) will likely overlook this month’s CPI report, as the October report only reflects around 60 percent of prices in the consumer basket and does not include updated data for many service items.
She also pointed out that the CPI indicator can be distorted by the deflationary effects of reductions in electricity bills and lower gasoline prices, which have sometimes been misleading in the past.
“The RBA has expressed concerns about persistent underlying inflationary pressures which are mainly measured by alternative measures which have shown mixed signals this month,” Bui said.
Indeed, the data reveals that excluding outliers such as a 36 percent drop in electricity prices and a 12 percent decrease in fuel costs, the reduced monthly average inflation reached 3. 5 percent.
“While lower average inflation still appears on track to return to the RBA’s forecast level, at 3.4 per cent by the end of the year, it is falling rather slowly, meaning there is a high risk that our forecast starts later a rate cut in February,” Bui said.
The Commonwealth Bank of Australia (CBA), which recently revised its February-May decline forecast, agreed that the October CPI report would not impact the RBA’s December decision.
“Today’s report has little or no influence on December’s monetary policy decision, which will be a simple suspension decision,” said Stephen Wu, senior economist at the ABC.
“The RBA will at least await full quarterly inflation figures for Q4 24 (29/1) before its mid-February (18/2) board meeting, at which staff will also present updated economic forecasts.”
Bendigo Bank chief economist David Robertson acknowledged the latest inflation data argued in favor of a business-as-usual decision for December. However, he suggested more evidence could prompt the RBA to cut rates by May as the worst shock to the cost of living fades.
“Markets were expecting an RBA cut in February, but have recently reduced those expectations and are now aligned with our unchanged view of the easing cycle starting in May,” Robertson said.
Robertson also pointed to external factors, such as Donald Trump’s latest tariff threats, which continue to add volatility to global markets. However, he does not expect this to have a significant impact on the Australian economy or the RBA’s decisions over the next six months.
“[These factors] will most likely be a factor in the medium term via our major trading partners in Asia,” Robertson said.
HSBC chief economist Paul Bloxham was the most hawkish in his assessment, saying on Wednesday that the latest data would likely reinforce the RBA’s view that core inflation remains too strong to match its target of 2 to 3 percent.
“We expect rate cuts to still be some time away,” Bloxham said.
He further noted that HSBC’s central forecast is for the RBA to delay its rate cuts until the second quarter of 2025, followed by a phase of gradual easing. However, he also highlighted the growing risk that the RBA will not cut rates at all in 2025, assigning a 25% probability to this outcome.
