Australia's Consumer Price Index (CPI) increased by 3.4 percent in the 12 months to November, a moderation from the 3.8 percent recorded in October, according to data released by the Australian Bureau of Statistics (ABS). This figure was below market expectations. Following the data release, financial markets assigned a two-thirds probability to the Reserve Bank of Australia (RBA) maintaining current interest rates at its upcoming meeting in February. However, economists from various institutions hold differing views on the RBA's next policy decision, with some anticipating a rate hike and others projecting stability. The RBA's interest rate setting board is scheduled to convene in early February, with further key economic data, including December and quarterly CPI figures, due for release beforehand.
November Inflation Overview
The annual Consumer Price Index (CPI) growth in Australia for November registered 3.4 percent, a decrease from 3.8 percent in October. The underlying measure of inflation, the trimmed mean, also showed a reduction, moving from 3.3 percent in October to 3.2 percent in November. These figures were below a Reuters poll of economists, which had forecast a 0.3 percent monthly rise in November, leading to an annual rate of 3.7 percent, with the trimmed mean expected at 3.3 percent.
Following the release of the inflation data, the Australian dollar experienced a slight decline, moving from 67.38 US cents to 67.24 US cents, while the ASX200 index rose from 8,700 to 8,734 points.
Luci Ellis, Westpac chief economist, noted the presence of "noise in the data" influenced by factors such as electricity price adjustments following rebates. She also commented that the monthly trimmed mean is currently a "noisy number" due to the novelty of the data and uncertainties regarding ABS management in certain areas.
Key Inflation Contributors and Movements
For the 12 months ending November, housing was the largest contributor to annual inflation, increasing by 5.2 percent. This included rents rising by 4 percent and new home construction by 2.8 percent. Electricity prices rose by 19.7 percent as rebates lapsed, a deceleration from the 37.1 percent increase in October.
Other significant increases observed were in food and non-alcoholic beverages (3.3 percent), with meals out and takeaway rising by 3.5 percent due to wage and ingredient costs, and meat and seafood by 3.9 percent due to overseas demand. Transport costs increased by 2.7 percent.
Annual goods inflation registered 3.3 percent in the 12 months ending November, down from 3.8 percent in October. Services inflation also eased, increasing by 3.6 percent year-on-year to November, a reduction from 3.9 percent in October, which had been influenced by elevated demand for travel during school holidays.
Conversely, some categories saw price decreases from October to November:
- Clothing and footwear prices: -3.1% (amid Black Friday sales).
- Furniture prices: -4.6%.
- Domestic holiday prices: -4.1%.
- International holiday prices: -0.6%.
- Health costs: -0.5% (following expanded bulk-billing incentives on November 1).
Reserve Bank of Australia Outlook and Economist Projections
The Reserve Bank of Australia (RBA) has previously expressed concerns regarding inflation remaining above its 2-3 percent target band. RBA Governor Michele Bullock indicated that the central bank would likely consider whether to maintain current interest rates or implement further increases.
Economists and financial markets hold diverse projections for the RBA's February policy meeting and the subsequent period:
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Anticipating a Rate Hike:
- A quarterly survey by The Australian Financial Review of 38 economists indicated that seven, including those from Commonwealth Bank (CBA) and National Australia Bank (NAB), expect the RBA to raise rates in early February.
- CBA maintains its prediction for a 0.25 percentage point rate hike at the RBA's February 3 meeting, forecasting the cash rate to remain at 3.85 percent thereafter.
- NAB economists maintained their prediction of rate increases in February and May following the November data.
- Paula Gadsby, a senior economist at EY, suggested that for the RBA to achieve its 2.5% target inflation band, "interest rates will need to be lifted in the first half of 2026."
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Projecting Stable Rates:
- ANZ and Westpac economists project the cash rate to remain stable.
- Dr. Luci Ellis stated that the November inflation data reinforces her view for steady rates, while acknowledging the RBA's communicated perspective on a potential "renewed inflation problem" in Australia.
- Stephen Smith, a partner at Deloitte Access Economics, stated that a February rate hike would be "premature" given the lack of clarity regarding recent inflation trends, advocating for a "careful and cautious" policy response.
- Diana Mousina, an AMP economist, noted the "moderation" in prices, suggesting that recent increases might be "one-offs."
- Financial markets indicated a two-thirds probability of the RBA maintaining current interest rates at its February meeting.
Financial markets, however, anticipate a rate hike by June, with a probability of a second increase before December.
Other Economic Indicators and Potential Impacts
CBA data indicates annual wage growth declined to 3.1 percent in November, from 3.2 percent the prior month. The Australian economy added 23,000 jobs in December, and quarterly wage growth remained stable at 0.8 percent.
Consumer confidence data shows the ANZ-Roy Morgan Australian Consumer Confidence index rising three points to 84.5 in the week ending January 11, though an ANZ economist commented this represents the weakest new year's print in over 15 years. A spending measure, the 'time to buy a major household item' subindex, reached its third-highest reading since early 2024. Weekly inflation expectations eased by 0.2 percentage points last week.
Canstar analysis suggests that a 0.25 percentage point increase in interest rates would result in monthly repayment increases for mortgage holders: a $600,000 mortgage would increase by $90 per month, a $750,000 loan by $112 per month, and a $1 million mortgage by an extra $150 per month.
Upcoming Key Dates
- January 22: Labour force data release.
- January 28: December and Q4 2024 CPI inflation figures release.
- February 3: RBA interest rate decision.