Investing.com - Australia is experiencing a faster-than-expected drop in inflation, strengthening the likelihood that the Reserve Bank of Australia (RBA) will maintain its current interest rates in its upcoming meeting.
Recent data from the Australian Bureau of Statistics (ABS) reveals that the consumer price index (CPI) rose to a two-year low of 4.1% in the 12 months leading up to December. This figure is lower than the 4.3% inflation rate that financial markets had largely anticipated.
The key contributors to the quarterly figure were housing (up 1%), alcohol and tobacco (up 2.8%), and food and beverages (up 0.5%).
Australia's inflation receded to a two-year low in the December quarter as food and fuel prices rose at a slower rate. This development has sparked hopes that the RBA's next move might involve an interest rate cut.
The CPI for the final three months of 2023, compared to a year earlier, came in at 4.1%, according to the Australian Bureau of Statistics. This figure is lower than the expected 4.3% and represents a decrease from the September quarter's inflation rate of 5.4%.
The RBA had predicted in November that inflation would end 2023 at an annual rate of 4.5%. Before the release of today's CPI figures, investors believed there was a minimal chance that the central bank would raise its cash rate from 4.35% in its first meeting of the year next Monday and Tuesday.
The focus is now shifting towards when the RBA might start cutting interest rates, provided it gains confidence that inflation will fall back within its 2-3% target range before the end of next year.