Decrease in Inflation Raises Expectations for Rate Cuts

Following Treasurer Jim Chalmers’ optimistic remarks about Australia’s economic recovery and a smooth landing in his budget speech, recent inflation data from the Australian Bureau of Statistics (ABS) has reaffirmed his confidence.

The most recent Consumer Price Index (CPI) numbers reveal that headline inflation has slowed to 2.4 percent over the 12 months leading up to February, down from January’s 2.5 percent and now within the Reserve Bank of Australia’s (RBA) target range of 2-3 percent.

“Annual CPI inflation for February saw a slight decrease after holding steady at 2.5 percent for the previous two months,” stated Michelle Marquardt, ABS head of price statistics.

Core inflation, which excludes volatile items, dropped from 2.9 percent to 2.7 percent, while the RBA’s preferred measure of underlying inflation, the trimmed mean, also declined to 2.7 percent.

With the central bank gearing up for an interest rate review in April, this downward trend could spark discussions about potential interest rate reductions.

Housing and Energy Prices Impact Slowdown

Key factors contributing to the easing inflation rate include reductions in electricity prices and slower rental growth.

Data indicates that housing inflation decreased to 1.8 percent in February, down from January’s 2.1 percent, largely due to declining electricity prices associated with rebates from the Commonwealth Energy Bill Relief Fund in Victoria.

Rental price growth also decelerated to 5.5 percent, the lowest since March 2023, in sync with rising vacancy rates.

New dwelling prices saw a mere 1.6 percent increase, the weakest since May 2021, as builders introduced discounts and incentives.

Nationally, electricity prices dropped by 2.5 percent, with Victoria’s rebates contributing to a steeper 13.2 percent annual decline.

The ABS noted that without government rebates, prices would have decreased less.

“Excluding all Commonwealth and State government rebates, electricity prices would have fallen 1.2 percent in the 12 months leading up to February,” said Marquardt.

Chalmers vs. the Opposition

Chalmers expressed satisfaction with the data, calling it “more positive and promising news indicating progress in combating inflation together.”

He highlighted that both headline and underlying inflation have remained below the midpoint of the RBA’s target for several months.

“The budget unveiled this week continues the fight against inflation and demonstrates that the Treasury now anticipates inflation to return sustainably to the target range six months earlier—in the middle of this year, rather than at the end,” he explained.

However, Shadow Treasurer Angus Taylor dismissed the government’s positivity, arguing that Australians have witnessed an 8 percent decline in their standard of living over the past two and a half years.

“The Reserve Bank Governor labeled it as homegrown, and we’ve seen grocery prices rise by 30 percent, energy prices—gas and electricity—increased by over 30 percent, along with higher insurance premiums, mortgage expenses, and more,” Taylor remarked.

While inflation is moderating amidst a cost-of-living dilemma, the debate surrounding economic management persists.