Core inflation eases, but soaring electricity prices and resilient labour market complicate outlook
Inflation data for November has sparked discussion about the future of Australia’s cash rate, with the Australian Bureau of Statistics (ABS) reporting mixed results that could influence the Reserve Bank of Australia’s (RBA) policy decisions in early 2025.
The ABS data revealed that annual trimmed mean inflation declined to 3.2% in November, down from 3.5% in October. This moderation in core inflation, combined with softer housing costs and slower services inflation, has led banking giant ANZ to suggest the possibility of a February rate cut.
“This raises the probability of a February rate cut, although the resilience in the labour market will be a key consideration,” said Catherine Birch (pictured above left), senior economist at ANZ.
ANZ highlighted signs of strength in employment, with Q4 job vacancies rising 4.2%, suggesting robust labour demand. However, headline inflation climbed to 2.3% annually in November, driven largely by a sharp 22.4% increase in electricity prices.
Birch pointed out that while the surge in electricity costs lifted overall inflation, other categories — such as meals out, takeaway, and insurance — came in weaker than expected, adding downward pressure on services inflation.
Fellow major bank Westpac’s analysis echoed some of these findings. Senior economist Justin Smirk (pictured above right) noted that while trimmed mean inflation appears to have stabilised around 3%, it may drift below this level in 2025 if housing costs continue to ease.
Housing prices recorded an unusual decline in November, with new dwelling construction costs falling 0.6% — the largest drop since the HomeBuilder scheme’s impacts in 2020. Both ANZ and Westpac attributed this to builders offering discounts and promotional offers, further contributing to the easing of inflationary pressures.
However, electricity prices remain a key concern. Westpac attributed November’s steep increase to adjustments in the Commonwealth Energy Bill Relief Fund rebates, particularly in New South Wales, Victoria, and Western Australia.
Smirk warned that these elevated electricity costs are unlikely to fully reverse in December, which may prompt an upward revision to Westpac’s December quarter CPI forecast.
Westpac currently sees upside risks to its December quarter CPI estimate of 0.2% quarter-on-quarter and 2.4% year-on-year. However, for trimmed mean inflation, Westpac forecasts a slight downside risk to its estimate of 0.6% quarter-on-quarter and 3.4% year-on-year, given the trimmed data distribution.
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