The Australian Bureau of Statistics (ABS) reported the Consumer Price Index (CPI) increased by 0.2 per cent in the December 2024 quarter. This marks a significant decline from the peak of 7.8 cent observed two years prior.
Experts have adjusted their forecasts in response to this news, and many are now forecasting a 90 per cent chance the RBA will cut rates in February. The Australian dollar has also experienced a decline, reflecting the change in expectations.
Alan Oster, Chief Economist at National Australia Bank, said that the lower inflation figures make it more likely the RBA will reduce rates by 25 basis points. Meanwhile, Luci Ellis of Westpac has brought forward her rate cut projection to February because the RBA needs to react to the improved outlook.
Several factors have contributed to the moderation in inflation. For example, the Energy Bill Relief Fund has led to a 9.9 per cent decrease in electricity prices during the December quarter. Without these rebates, electricity prices would have seen a marginal increase of 0.2 per cent. The housing sector has also seen a fall in prices for the first time since the middle of 2021. This drop was helped by builders offering incentives to help boost demand.
Despite the good news, there are still some factors contributing to a high cost of living. For example, domestic travel costs have risen due to higher airline and accommodation prices because of increased demand over the school holiday period. The annual tobacco excise increase has also led to higher prices for tobacco and alcohol and inflation levels for services remain high. These high figures are down to increasing costs of medical services, insurance, and rent.
Treasurer Jim Chalmers has acknowledged the progress made in controlling inflation but suggests caution against complacency. He noted that while significant strides have been made, many Australians continue to face financial challenges. Chalmers went on to say that the economy is on track for a “soft landing,” and that development are in line with the government’s objectives.
The RBA has consistently noted that returning inflation to its target range of 2-3 per cent is a priority. The next meeting is scheduled for mid-February and many expect the central bank to consider implementing a rate cut. Such a move would encourage economic stability and offer much-needed relief to countless businesses and individuals.
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