Chalmers boasts inflation data, experts divided

The monthly Consumer Price Index (CPI) indicator rose 2.3% in the 12 months to November 2024, but trimmed mean inflation came in at 3.2% - still tracking above the Reserve Bank of Australia's (RBA) target range of 2-3%.

Speaking at a press conference after the inflation figures were released, Treasurer Jim Chalmers put out a positive sentiment, pointing to the significant decrease in inflation growth since 2022.

"When we came to office, inflation had a six in front of it and it was rising, now inflation has a two in front of it, and that is a demonstration of that progress," Chalmers said.

"Headline inflation is now around a third of what we inherited from the Liberals. It's almost a quarter of its peak in 2022. In the last year alone, it has almost halved as well."

Chalmers said headline inflation has been within in the RBA's target range for four months now, but as VanEck head of investments Russel Chesler points out, the underlying number is still too high and the figures came in higher than market expectations.

"While market consensus had shifted towards a 70% probability of a rate cut in February, we don't see this happening until later in the year," Chesler said.

"The market optimism towards an earlier rate cut was triggered by comments made by [RBA] governor [Michele] Bullock in early December, but it was predicated on the requirement that a rate cut was supported by data."

Chesler said VanEck expects a rate cut to come later in the year with the easing cycle to deliver just one or two cuts in 2025.

However, this view is not shared by all. Bendigo Bank chief economist David Robertson said he is anticipating a rate cut in the first half of 2025, albeit perhaps not as soon as February when the RBA board will first meet.

"Inflation data...was again supporting for RBA rate cuts on the first half of 2024, although we will need more constructive data in the coming weeks to support a February cut," Robertson said.

"The November data had a better cover of services inflation than the previous month, however the timing of government subsidy payments continues to distort the numbers, so we need to see the full quarterly (released January 29) before we can draw any firm conclusions."

The CPI data showed the biggest fall in monthly CPI came from electricity, which was down 21.5% thanks to state and federal government subsidies.

However, Chalmers said these falls would have come eventually and the government was able to help deliver some relief to struggling Australians without putting pressure on inflation.

"If you take electricity prices, for example, they have fallen 21.5% in the year to November. They would have fallen 1.7% without our energy rebates for every household that we are rolling out," he said.

"Electricity prices would have come off a little bit without action. They've come off substantially because of the electricity bill rebates that we are providing to every household in Australia, and that's a good thing."

Despite trimmed mean inflation still well above the RBA's mid-point target of 2.5%, HSBC chief economist Paul Bloxham said the data was still a positive start to the year.

"Our overall reading is that the CPI indicator figures suggest gradual disinflation, but that core inflation is still above the RBA's target band," Bloxham said.

"For the RBA, [the] trimmed mean indicator figures are likely to suggest modest downside risk to the central bank's forecast for 3.4% yoy on the Q4 quarterly trimmed measure. However, the job vacancy data add to a picture which suggests that the jobs market is no longer loosening, but is instead tightening.

"That means that although core inflation may be heading to the RBA's target a little faster than expected, it is still above target and if the jobs market is tightening, this will make it even harder to achieve the 'last mile' of getting core inflation all the way sustainably back to target."

Bloxham said he is not anticipating an interest rate cut until Q2 2025 with a 25% chance of no cuts at all this year.