Australia’s monthly Consumer Price Index (CPI) indicator for January rose less than expected, with annual headline inflation holding steady at 2.5%, slightly below the forecast of 2.6%. However, underlying inflation showed some upward movement, with the trimmed mean CPI increasing to 2.8% from 2.7% in December.
A broader measure of core inflation, which excludes volatile items and holiday travel, also rose, reaching 2.9% in January compared to 2.7% in the previous month. Meanwhile, inflation in key housing-related categories showed signs of easing. Rents inflation slowed to 5.8% from 6.2%, while new dwelling inflation declined to 2% from 2.3%—the lowest annual rise in new dwelling prices since June 2021.
“Australia’s monthly headline inflation for January came in slightly lower than forecast at 2.5%, but trimmed mean inflation picked up to 2.8% from 2.7% in December,” eToro market analyst Josh Gilbert said.
"This report doesn’t necessarily provide a smoking gun for the Reserve Bank of Australia (RBA) to continue cutting rates, but it does offer reassurance that inflation is moving in the right direction and supports the cut we saw earlier this month.
“The biggest concern for policymakers and investors alike remains the view that disinflation may stall, hence the RBA’s hawkish stance despite cutting rates.
"We’ve seen this happen across the pond, where price pressures have persisted in the US and the Fed is easing off when it comes to cutting rates.
“For now, another cut isn’t likely in April, particularly with the ongoing strength in the labour market. The board will be laser-focused on Q1 data released after its decision in April.
"Should that bring further disinflation, we can look to May as the next time Michele Bullock and her team may cut rates.”
According to the Australian Bureau of Statistics (ABS), the slowdown in new dwelling inflation is largely driven by discounts and promotional offers from project home builders, along with improvements in material and labour supply. However, electricity prices contributed to inflationary pressures in the housing sector, particularly for Queensland households that had exhausted their state government electricity rebates.
While this CPI reading does not reflect the full quarterly inflation picture—given that the first month of the quarter is typically weighted towards goods—it serves as the first key inflation gauge since the RBA initiated its latest round of rate cuts last week.
Inflation refuses to let go
“This month’s unchanged Consumer Price Index tells us inflation is still refusing to ease its grip, which is especially concerning looking at our latest employment data – wages are stalling and hours are getting axed,” Employment Hero CEO Ben Thompson said.
“SMEs are feeling the post-holiday squeeze and are likely course correcting through flexible, casual hiring to weather mounting cost pressures. We may see this trend continue given the uncertainty of the market – despite the rate cut offering some relief.”
Employment Hero’s latest SmartMatch Employment Report (SMER), which draws on real-time anonymised and aggregated payroll data from over 1.1 million Australians, shows that:
- The median hourly wage in Australia rose by 4.3% year-on-year (YoY), reaching $41.20 in January 2025.
- Quarterly wage growth was modest at 0.2%, but there was a notable -2.0% decline from December 2024.
- Wage growth for full-time employees significantly slowed to 3.3% YoY from 7.0% in December 2024.
- Wage growth remained steady for part-time and casual workers, with increases of 3.6% and 4.9%, respectively.
- Average hours worked declined significantly, down -6.1% YoY, with casual roles seeing the biggest drop at -27.2%.
Low odds for another rate cut
According to GoCardless account director Kyle Willersdorf the figures do not auger well for a rate cut in April.
“Even with this month’s interest rate cut, today’s Consumer Price Index reading is a reminder that there’s still a long way to go before we’re really in the clear. This staid CPI reading pushes the odds of a consecutive rate cut down considerably, which is a bit of a blow for consumers – but an even bigger challenge for businesses already struggling to stay afloat.
“If you’re running an SMB, financial resilience is now vital. The economy is still shaky, spending will fluctuate, and another interest rate cut is not guaranteed after today’s results. Businesses need to take control where they can - improving cash flow and cutting unnecessary costs.”