FOMC holds rates as Chalmers boasts 'our inflation is lower'BY ELIZA BAVIN | THURSDAY, 30 JAN 2025 12:24PMTreasurer Jim Chalmers has boasted about Labor's policies after the latest CPI reading from the Australian Bureau of Statistics (ABS) reported underlying inflation was now at its lowest point in three years. "Our headline inflation is now lower than most major advanced economies, including the US, the UK, and Germany," Chalmers said. "And if you look at the underlying measure, the trimmed mean measure, it was 3.2% through the year to the December quarter, down from a revised 3.6%. If you look at the trimmed mean number in the quarter, it almost halved. It's now 0.5% and that makes it around a third of what it was at the time of the election." Chalmers' comments come as the US Federal Reserve kept interest rates steady overnight at 4.25-4.5%. It was the first time since August 2024 the FOMC left policy unchanged. While the decision to keep rates in the US steady was no surprise to markets, Fed chair Jerome Powell flagged uncertainty around the new Trump administration's policies. Powell said the FOMC will not act until they have seen "much more than we've seen now", adding "we are not in a hurry to adjust policy". Powell also flagged that while the central bank wants to see inflation decelerate more, he did not want to see the labour market "cool off" more. Chalmers said Australia was not having to play the same balancing act. "Many countries around the world have paid for this kind of progress on inflation with much higher unemployment, or with negative quarters of economic growth," Chalmers said. "What Australians have been able to achieve is an economy where growth has continued to tick over, albeit slowly, where unemployment has stayed incredibly low, jobs are being created, wages are up, but inflation is down considerably." When pressed on whether the Reserve Bank of Australia (RBA) would be more inclined to begin a rate cutting cycle, Chalmers said he would not be making any predictions. "I respect the independence of the Reserve Bank too much to try and make predictions or to give them free advice, or to try and colour in for them the decision that they will make independently and announce towards the middle of February," he said. Economists are split on whether a rate cut will be delivered in February. Commonwealth Bank head of Australian economics Gareth Aird - who often held the view rate cuts were further on the horizon than others - said he believes a cut will come when the RBA meets next month. "We believe [the CPI] data has given the green light for the RBA to commence normalising the cash rate at the February board meeting with a 25bp rate cut," Aird said. "Headline inflation has been within the RBA's target band for the past two quarters. And the RBA's preferred measure of underlying inflation is now not far from the mid-point of the target band on a six-month annualised basis." HSBC chief economist Paul Bloxham agrees the most recent CPI measure increases the case for a February cut, but said more information is still needed. "Core inflation is heading lower but is still above target year on year in an economy that is still fully employed, with a jobs market that appears to be tightening," Bloxham said. "[The] data increases the chance of a cut in February, rather than Q2, which is our central case. We see the tightening jobs market making it a close call." Related News |
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