Australia’s inflation rate has fallen to its lowest level in more than three years, bolstering the case for the Reserve Bank to deliver an interest rate cut when it next meets on February 17 and 18.
The underlying inflation rate — the RBA’s preferred inflation gauge, which strips out volatile price swings — fell to a three-year low 3.2% on an annual basis for the December quarter, down from 3.5%.
The Australian Bureau of Statistics reported that through the final three months of 2024, consumer prices climbed by 0.2%. This took the annual headline inflation rate to 2.4%, down from 2.8% in the 12 months to the end of September. This marked the lowest inflation result since the March quarter of 2021.
ABS head of prices statistics Michelle Marquardt said the 0.2% quarterly increase, after a similar lift in the September quarter, was the lowest lift in inflation since the COVID pandemic.
The fall in inflation was due partly to the Federal Government’s electricity subsidies while prices for a range of other goods and services also eased.
The cost of building new homes fell by 0.2% in the quarter, taking the annual rate of growth down to 2.9%, having peaked at almost 21% in mid-2022.
Rents rose 0.6% in the December quarter, after a 1.6% climb in the prior quarter. This brought annual rent growth down to 6.4% driven in part by an increase in Commonwealth Rent Assistance.
RBA to consider rate cut
Economists predicted that a 3.2% CPI figure would prompt the RBA to cut rates next month, bringing relief to mortgage holders and signalling confidence that efforts to curb high inflation have been effective.
The official cash rate has sat at 4.35% since November 2023.
Saxo Bank Asia Pacific senior sales trader Junvum Kim said: “This softer-than-expected inflation data could amplify expectations for a February RBA rate cut and bolster the Reserve Bank’s confidence in steering inflation back to its target within a reasonable timeframe.”
Betashares chief economist David Bassanese responded to the CPI data in a note titled, 'cut baby cut', and described the inflation result as a material surprise to the downside.
He said, “There's now a good chance trimmed mean 'underlying' inflation could fall back to within the RBA's 2-3% inflation target band by June, rather than the RBA's current expectation of December.”