A major indicator of Australian inflation fell in November and moved closer to the central bank’s target band,suggesting that authorities may have room to consider monetary easing sooner rather than later. The coin fell.
The basic cropped stocking measurement, closely followed by the Reserve Bank and smoothing out volatile items, slowed to 3.2% from 3.5% in the previous month, Australian Bureau of Statistics data showed on Wednesday.
The Australian dollar fell to 62.23 US cents after the data, from 62.40 before. The yield on policy-sensitive three-year government bonds also declined, while the benchmark equity index moved higher. Money markets now see about a 70% chance of a 25 basis point reduction in the benchmark target rate in February from a 13-year high of 4.35%. A reduction is fully priced into prices for April.
Economists also expect the RBA’s next step to be to ease rates, although they disagree on the timing of this, given somewhat sticky core inflation and the uncertain global backdrop. A full set of pricing data will be released later this month for the December quarter, which will be important data for the RBA meeting on February 17 and 18.
The latest result will also give breathing room to the centre-left Labor government, which is trailing in the polls as the electorate is frustrated by cost of living pressures and high interest rates. Australia will have to hold elections before May 17.
Treasurer Jim Chalmers celebrated the fall in core inflation in November in a post on X.
The RBA has kept rates unchanged since November 2023 and has highlighted that aggregate demand continues to exceed the economy’s supply capacity. Minutes from the December meeting showed that the central bank is more confident that inflation is moving sustainably towards the targetbut it is still too early to conclude that the battle is won.
Members had noted that additional information on employment would be available at the February meeting, inflation and consumption, along with a revised set of staff forecasts, suggesting next month’s review could be underway.
Today’s report also showed:
- Headline inflation accelerated to 2.3% in the 12 months to November, from 2.1% in October
- The largest contributors to the annual print were food and non-alcoholic beverages, alcohol and tobacco, and recreation and culture.
- The increase in the general CPI was partially offset by the slower growth rate of electricity and automobile fuels.
- The housing pool rose 1.2% in the 12 months to November, up from 0.2% in October, largely due to the timing of electricity rebates.
- Annual rents increased 6.6% in November, following a similar annual increase of 6.7% in October, reflecting the continued tightness of rental markets across the country.
- New home price growth slowed to 2.8%, following a 4.2% rebound in the 12 months to October. Annual new home inflation is now the lowest since July 2021
- A separate statement from the ABS showed that job vacancies rose 4.2% in November, the first increase since May 2022
