Australia’s Inflation Slows in October, Government Rebates Help

Australia’s inflation rate in October came in lower than expected, reflecting a cooling in key price drivers such as electricity and rental costs, aided by government rebates.

The consumer price index (CPI) indicator advanced by 2.1% year-on-year, below economists’ forecast of a 2.3% increase, according to data from the Australian Bureau of Statistics (ABS) released on Wednesday. The headline CPI figure has now remained within the Reserve Bank of Australia’s (RBA) 2-3% target range for three consecutive months.

However, the RBA’s preferred measure of core inflation, the trimmed mean, showed a 3.5% increase from the same period last year, up from 3.2% in September. This core measure, which excludes volatile items, remains a key focus for the central bank as it aims to manage price stability.

Australia’s Inflation Slows in October, Government Rebates Help

“The falls in electricity and fuel had a significant impact on the annual CPI measure this month,” said Michelle Marquardt, ABS Head of Prices Statistics. A sharp 35.6% drop in electricity costs, largely due to national and state government energy rebates, played a pivotal role in moderating inflation.

Following the release, the Australian dollar and the yield on three-year government bonds edged higher, signaling that markets expect the RBA to keep interest rates steady until at least May 2025. The RBA has kept its cash rate at 4.35% since November 2023, with the central bank signaling that the current restrictive stance is needed to curb inflation.

Despite this, core inflation has remained sticky, complicating any decisions about rate cuts. Governor Michele Bullock has indicated that the RBA will maintain its caution and not respond impulsively to short-term data, especially as the monthly inflation gauge can be volatile and influenced by temporary factors.

The ABS report also showed notable price increases in food (up 3.3%), recreation and culture (up 4.3%), and alcohol and tobacco (up 6%), while rents rose by 6.7%.

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