In the final quarter of 2023, Australia witnessed a notable deceleration in inflation, marking a two-year low, according to data released by the Australian Bureau of Statistics on Wednesday. The consumer price index (CPI) rose by 4.1% compared to the same period the previous year, slightly below economists’ expectations of 4.3% and a significant drop from the 5.4% pace recorded in the September quarter.
The quarterly increase in CPI, standing at 0.6%, was half the rate observed in the preceding quarter, contrary to economists’ projections of a 0.8% increase. December’s standalone CPI figure also fell short of predictions, coming in at 3.4% instead of the anticipated 3.7%.
This unexpected moderation in inflation has sparked optimism among market participants, with growing expectations that the Reserve Bank of Australia (RBA) may lean towards an interest rate cut in its upcoming meetings. David Bassanese, Chief Economist at BetaShares, noted that the lower-than-expected CPI results should dispel any lingering possibilities of an RBA rate hike.
Treasurer Jim Chalmers welcomed the figures, highlighting the positive impact on real wages and predicting tax cuts from July 1. Notably, food and non-alcoholic beverages experienced a modest 0.5% increase in the quarter, with notable declines in lamb prices by 12.1% and beef and veal by 1.5%. Automotive fuel prices also decreased by 0.2%, despite global geopolitical events.
Housing costs, including rents, rose by 1% and 0.9%, respectively, although at a slower pace compared to the September quarter. However, power prices exhibited a milder 1.4% increase in the December quarter, influenced by government energy bill rebates.
With attention shifting from potential rate hikes to the possibility of rate cuts, investors adjusted their positions accordingly, resulting in a 0.2 US cents drop in the Australian dollar and a modest 0.25% increase in the share market. The RBA’s focus appears to be on assessing when it might initiate interest rate reductions if confident that inflation will return within its target range of 2-3% by the end of the coming year.
