Australia’s inflation rate has softened by more than expected and added to the case for the Reserve Bank staying on hold next month.
The monthly consumer price index rose 4.9 per cent over the 12 months to October, down from the 5.6 per cent increase in September.
Expectations were for a 5.2 per cent annual lift through to October in the Australian Bureau of Statistics’ monthly report on inflation.
Housing, food and non-alcoholic beverages, and transport were the biggest contributors to the annual growth.
The housing category lifted 6.1 per cent, which was down from the 7.2 per cent growth in September.
New dwelling prices lifted 4.7 per cent yet the increase was the smallest since August 2021, which the ABS chalked up to cooling building material prices.
A tight rental market continues to push up rents but the annual increase of 6.6 per cent in the 12 months to October was below the 7.6 per cent increase in September.
Acting ABS head of prices statistics Leigh Merrington said the boost to Commonwealth Rent Assistance in September brought down rents for those eligible for the income support.
“Excluding the changes to rent assistance, rents would have increased 8.3 per cent in the 12 months to October,” Mr Merrington said.
He said the indicator had softened when volatile items such as automotive fuel, fruit and vegetables and holiday travel were stripped out.
“When excluding these volatile items from the monthly CPI indicator, the annual rise in October is 5.1 per cent, lower than the annual rise of 5.5 per cent in September,” Mr Merrington said.
The monthly consumer index is not as comprehensive as the quarterly update and the October edition was skewed towards price changes across goods.
But it still contains key information for the Reserve Bank as it monitors price pressures in Australia.
The central bank has been lifting interest rates to bring inflation back within its two-three per cent target range.
It kicked up the cash rate by another 25 basis points in November after several months on hold.
EY chief economist Cherelle Murphy said a sub-five result in the consumer price index was welcome news for the Reserve Bank.
“It’s clear the 13 rate hikes that have taken the cash rate from 0.1 per cent to 4.35 per cent are working. What is less clear is whether inflation is falling fast enough,” she said.
The economist said the data confirmed the RBA governor Michele Bullock’s concerns that inflation has a “home-grown” element to it, meaning interest rates are an effective tool to combat it.
“The trimmed mean fell only marginally from an annual rate of 5.4 to 5.3 per cent,” she said.
“This is the figure that the Reserve Bank will be most focused on, as it removes one-off factors and picks up core inflation momentum.”
She said the RBA would likely keep rates on hold at the December meeting but there would be data over the summer that would be informative ahead of the next one in February.
The inflation data followed a weaker-than-expected retail data report for October, with sales down 0.2 per cent . AAP