Monthly inflation holds steady in January

CPI rose by 2.5 per cent over the 12 months to January, while core inflation lifted slightly to 2.8 per cent, according to monthly indicators from the Australian Bureau of Statistics (ABS).

“This report doesn’t necessarily provide a smoking gun for the RBA to continue cutting rates, but it does offer reassurance that inflation is moving in the right direction and supports the cut we saw earlier this month,” Josh Gilbert, market analyst at eToro, said.

Inflation was driven primarily by food and non-alcoholic beverages, alcohol and tobacco, and housing.

Food and non-alcoholic beverage prices rose by 3.3 per cent in the 12 months to January, up from 2.7 per cent in December figures. This was largely driven by fruit, which saw prices 12.3 per cent higher than they were 12 months earlier.

“Berry prices remain elevated following poor growing conditions in mid-2024. Prices for avocadoes, mangoes and citrus fruit have risen recently due to lower supply during the summer growing season,” the ABS said.

Rent increases eased to 5.8 per cent in the 12 months to January, compared to 6.2 per cent to December. This aligns with higher vacancy rates seen across most capital cities.

Last month also saw the lowest rise in new dwelling prices since June 2021, with new dwelling prices increasing by 2.0 per cent in the 12 months to January.

Diana Mousina, deputy chief economist at AMP, said new dwelling price inflation was “well down from Covid highs of 21.7 per cent.”

Discounts offered by home builders to entice business, as well as improvements in the supply of labour and materials have driven the slowdown in dwelling inflation, according to the ABS.

Government electricity rebates have cooled power prices. Compared to 12 months ago, electricity prices were 11.5 per cent lower in January. The ABS estimated that prices would have only fallen 1.2 per cent in the 12 months to January if energy rebates had not been implemented.

While these monthly figures are promising, commentators warn that the Australian economy may not be out of the woods.

“The biggest concern for policymakers and investors alike remains the view that disinflation may stall, hence the RBA’s hawkish stance despite cutting rates,” Gilbert said.

“We’ve seen this happen across the pond, where price pressures have persisted in the US and the Fed is easing off when it comes to cutting rates.”

Economists believe that the RBA won’t cut rates again until May, after quarterly inflation figures come out.

“The RBA’s clear signal is that this will depend principally on quarterly CPI readings, suggesting the next most likely time for a follow-up 25bps interest rate reduction is at the May board meeting,” Ivan Colhoun, chief economist at CreditorWatch, said.

“The downside surprise in today’s figures keeps the risk of another near-term RBA rate cut alive. We think the most likely time for another rate cut would be in May, after the full quarterly set of inflation data and further monthly jobs data which should show the unemployment rate settling above 4 per cent,” Mousina added.