Australian Inflation Steady in October, Interest Rate Outlook Unchanged

3 min read | November 27, 2024 01:21 PM AEDT | By Team Kalkine Media

Australian Inflation Steady in October, Interest Rate Outlook Unchanged — Image source: Shutterstock

Inflation Drivers and Pressures

According to the ABS, price increases in key categories like food and non-alcoholic beverages (up 3.3%), recreation and culture (up 4.3%), and alcohol and tobacco (up 6.0%) were the primary contributors to inflation.

However, substantial declines in electricity prices (down 35.6%) and automotive fuel prices (down 11.5%) offset these increases. The fall in electricity costs, attributed to government rebates, represents the largest annual decrease recorded in the CPI electricity series.

Michelle Marquardt, ABS Head of Prices Statistics, noted the significant influence of these declines, stating:

“The falls in electricity and fuel had a significant impact on the annual CPI measure this month. When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding volatile items and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending.”

Underlying Inflation Trends

The Reserve Bank of Australia (RBA) monitors underlying inflation measures to assess the economy's overall trend.

The trimmed mean inflation increased slightly to 3.5%, up from 3.2% in September, indicating persistent underlying price pressures.
The CPI excluding volatile items and holiday travel stood at 2.4%, a decline from 2.7% in the previous month, signaling some moderation.

Impact on Interest Rate Outlook

The RBA has maintained the official cash rate at a 12-year high of 4.35%, emphasizing the need for inflation to sustainably return to its 2%-3% target range before considering rate cuts. While headline inflation is within this range, underlying inflation remains elevated, suggesting the central bank will remain cautious.

For ASX 200 investors, the latest data aligns with expectations, likely extending the timeline for potential interest rate reductions to early or mid-2025. Despite easing headline inflation, the uptick in trimmed mean inflation dampens the likelihood of a pre-Christmas rate cut.

Market Response

The ASX 200 remained steady following the inflation report, reflecting a market already prepared for the cautious stance of the RBA. Investors and mortgage holders, however, continue to watch for signs that the central bank might signal a shift in its monetary policy in the coming months.

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