The annual inflation rate has dropped to a two-year low of 4.1%, while for the December quarter the consumer price index (CPI) saw a modest rise of 0.6% — the smallest quarterly increase since March 2021.
With the annual inflation figure coming in below the RBA’s projections, we can expect the central bank to again leave rates on hold when it meets next week.
The RBA, which had raised the cash rate by 0.25 percentage points to 4.35% in November in response to a higher-than-anticipated inflation rate in September, had forecasted a 4.5% annual headline and underlying inflation.
Looking at the RBA’s preferred metric — the trimmed mean, which excludes volatile price shifts — the year to December 31 recorded a 4.2% increase, down from the 5.1% surge in the previous quarter.
This rate is the lowest since the December quarter of 2021 when the CPI rose 3.5%. Notably, inflation for both goods and services slowed in the latter part of last year.
Michelle Marquardt, the Australian Bureau of Statistics' head of prices, said despite ongoing price rises in most sectors, the 4.1% annual inflation figure was well down from the December 2022 peak of 7.8%.
This easing of inflation comes amidst other indications of a cooling economy. The volatile job market witnessed a reduction of 65,000 jobs in December while maintaining a historically low unemployment rate of 3.9%. Retail sales experienced a significant 2.7% drop, the most substantial since the pandemic lockdowns of mid-2020.
The slump in retail sales and job market activity in December is partly due to a pullback after the heightened activity in November, buoyed by the Black Friday and Cyber Monday sales.
Dwyfor Evans, head of APAC Macro Strategy at State Street (NYSE:STT) Global Markets commented on today's ABS data: “Weaker than expected price pressures across the board, notably a headline rate below the RBA’s own 4.5% yoy estimate in its November monetary policy report.
"This outcome seals the hiking cycle and should allow the RBA to lean more dovish at its upcoming policy meeting on February 6.”