Australia’s inflation remains stable, but core measure raises doubts about potential rate cuts

Australia’s inflation rate remained stable in January; however, a slight uptick in core inflation has raised doubts about the likelihood of another interest rate reduction in the first half of the year.

The Australian Bureau of Statistics (ABS) reported that the consumer price index (CPI) stayed at 2.5 percent for the 12 months up to January, contrary to market predictions of a marginal uptick to 2.6 percent.

Michelle Marquardt, the head of prices statistics at the ABS, confirmed that the inflation rate did not change. Nonetheless, the trimmed mean, a crucial gauge of core inflation, rose to 2.8 percent, exceeding the expected 2.6 percent.

This latest inflation data follows the Reserve Bank of Australia’s (RBA) decision to reduce the cash rate to 4.1 percent in December, marking its first cut in over four years.

Despite inflation staying within the RBA’s target range, the increase in core inflation may dampen expectations of another rate cut in the short term.

RBA Governor Michele Bullock warned against assuming further rate cuts were imminent.

Food, Housing Costs Rise

The main contributors to annual inflation were food and non-alcoholic beverages (+3.3 percent), housing (+2.1 percent), and alcohol and tobacco (+6.4 percent).

Food inflation was primarily driven by a 12.3 percent surge in fruit prices due to adverse growing conditions in mid-2024. Avocadoes, mangoes, and citrus fruits also saw price increases due to decreased summer supply.

Housing inflation accelerated from 1.5 percent in December to 2.1 percent in January, with rents increasing by 5.8 percent annually.

New dwelling prices only rose by 2 percent, the slowest pace since June 2021, as builders offered discounts and promotions to attract buyers.

Energy Rebates

Electricity prices were 11.5 percent lower in January compared to the previous year, mainly due to government rebates.

The impact of Queensland’s $1,000 electricity rebate diminished as households exhausted the subsidy, resulting in a smaller decrease compared to December’s 17.9 percent drop.

Fuel prices provided some relief, declining by 1.9 percent annually and 1.4 percent in January alone, marking the first monthly decrease since October 2024.

Treasurer Welcomes ‘Progress’ on Inflation

Treasurer Jim Chalmers and Finance Minister Katy Gallagher welcomed the latest figures, noting that both headline and underlying inflation have stayed within the RBA’s target range for two consecutive months.

“This is the first time in nearly four years that headline inflation has remained below 3 percent for six consecutive months,” they stated in a joint release.

They described the data as evidence of “significant and sustained progress” in combating inflation.

“When we took office, inflation was higher and rising, and interest rates were climbing. Now, inflation is lower, and interest rates have dropped,” they remarked.

Meanwhile, Shadow Treasurer Angus Taylor expressed concerns that Australians would continue to face challenges under Labor’s economic management.

“Whether it’s living standards, productivity, or real wages—if Labor’s strategy persists, Australians will experience setbacks for a decade. If you can’t manage the economy, you can’t handle a cost of living crisis,” he emphasized.