February rate cut unlikely after inflation data

The monthly Consumer Price Index (CPI) indicator rose 2.3% in the 12 months to November 2024, up from a 2.1% rise in the 12 months to October, according to the Australian Bureau of Statistics (ABS).

The biggest jumps in prices were in food and non-alcoholic beverages (up 2.9%), alcohol and tobacco (up 6.7%), and recreation and culture (up 3.2%).

Partly offsetting the rise in CPI were falls in electricity (down 21.5%) and fuel (down 10.2%).

"Annual CPI inflation has risen since last month, in part due to the timing of electricity rebates. In some states and territories, households received two rebate payments in October in lieu of not receiving a payment in July," ABS head of prices statistics Michelle Marquardt said.

"From November most households received one payment. As a result, electricity prices fell 21.5% in the 12 months to November, compared to a fall of 35.6% to October."

The ABS said when prices for some items change significantly, measures of underlying inflation - like the annual trimmed mean and CPI excluding volatile items and holiday travel - can give more insights into how inflation is trending.

"Annual trimmed mean inflation was 3.2% in November, down from 3.5% in October," Marquardt said.

"Annual trimmed mean inflation remains higher than CPI inflation as it removed large price falls for electricity and automotive fuel."

The Reserve Bank of Australia (RBA) has said inflation needs to be "sustainably within the 2-3% target range".

VanEck head of investments Russel Chesler said the inflation read was higher than expectations, which might lead the RBA to hold off on a February interest rate cut.

"Inflation has edged up more than expected from 2.1% to 2.3%. More importantly the trimmed mean inflation, which is the number that really counts, came in at 3.2%, which is still outside the RBA's 2% to 3% target range. 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.

"We do not see current data as supportive of that. The labour market in particular has proven resistant to disinflation measures, with the most recent data showing unemployment has actually decreased to 3.9%. This is inhibiting further falls in inflation, as wages continue to be relatively elevated, despite recent moderation."

Chelser added that consumers had continued to spend, despite the rocky economic conditions.

"Australians are also continuing to demonstrate spending power, based on the strong retail sales in November and December. Record breaking Black Friday sales, which are expected to be up by 2.7% on last year's sales figures, were quickly followed by record Boxing Day sales, with Roy Morgan and the Australian Retailers Association reporting sales were up 4% on last year to $1.3 billion spend for the day," he said.

"Our forecast for the first RBA rate cut hasn't changed. While Australians are unlikely to get a rate cut post-Valentine's Day, we think it will land later this year, with the RBA expected to err on the side of conservatism and opt for a shallow easing cycle of one to two standard cuts in 2025."