Australia’s monthly inflation ticks up in January

Mortgage holders hoping for back-to-back rate cuts have taken a hit.

The Australian Bureau of Statistics’ January inflation print shows that trimmed mean inflation, which the Reserve Bank uses to measure Australia’s inflation rate, came in at 2.8 per cent, up from 2.7 per cent in December.

While Wednesday’s monthly CPI figures are only a snapshot, it gives the RBA an indication of where Australia’s inflation rate is heading, with a lower number better for a chance of a rate cut on April 1 when the board next meets.

The headline inflation rate rose to 2.5 per cent in the 12 months until January 2025.

Tuesday’s announcement was in line with economists’ expectations. CBA forecasts expected headline inflation to accelerate to 2.7 per cent year on year and trimmed mean inflation to come in at 2.8 per cent.

VanEck head of investment Russel Chesler said another rate cut in the short-term was unlikely.

“While market consensus has shifted towards an 80 per cent probability of the next cut being in May, we don’t see this happening until later in the year,” he said.

“The recent rate cut doesn’t mean we have inflation under control – if anything, we’re going to be walking on eggshells for the rest of the year until we’ve had a solid run of lowered inflation.”

According to Mr Chesler, with unemployment holding steady, robust retail sales and governments spending big in the lead-up to an election, the data doesn’t support further cuts.

“We still have a very tight labour market, and there is a chance it could get hotter. Job ads increased in December 2024 and January 2025, according to the ANZ Job Ads report, and with the recent rate cut, employment opportunities could increase further off the back of increased business confidence in the stability of the economy,” he said.

NED-9108-Monthly-Inflation-Indicator

Saxo chief investment officer Charu Chanana said while Wednesday’s figures didn’t give us the full picture, they did offer a glimpse into the path ahead.

“The bigger picture remains one of inflation softening, which justifies the RBA’s decision this month to cut the cash rate by 25 basis points,” Ms Chanana said.

BetaShare chief economist David Bassanese said while an April rate cut was unlikely, odds firmed for a cut in May.

“The best news, however, was that the annual trimmed mean inflation rate only bounced back modestly, from 2.7 per cent to 2.8 per cent, which bodes well for another encouraging quarterly CPI report when it is released in late April,” he said.

“Of course, the monthly CPI can be notoriously volatile and there’s still scope for it to bounce back further in February and March.”

While overall inflation rose, there were signs the rate of pain for households was starting to slow.

Rent inflation eased slightly to 5.8 per cent from 6.2 per cent, and new dwellings inflation eased to 2 per cent from 2.3 per cent. It’s the lowest annual rise in new dwelling prices since June 2021.

The ABS said the slowing in annual new dwellings inflation was off the back of improving the supply of materials and labour as well as discount offers by businesses to get Australians into the market.

Housing was still one of the largest contributors, up 2.1 per cent for the year.

The other large movers were food and non-alcoholic beverages, which is costing on average 3.3 per cent more than this time last year, and alcohol and tobacco, which rose 6.4 per cent.

The increase in annual food inflation was mainly driven by fruit, with prices 12.3 per cent higher than 12 months ago.

Most of the increase in annual inflation for the housing group to January was caused by increases in electricity prices for some Queensland households as the government unwound temporary support in the form of electricity rebates.

“Electricity rebates lower the price of electricity for households. The Queensland government introduced a one-off electricity rebate of $1,000 from July 2024. This rebate exceeded the average electricity bill for Queensland households. The impact of the rebates was lower in January than December as some households had exhausted the full value of the rebate.’ ABS head of prices statistics Michelle Marquardt said.

While not the full CPI and the first month of the quarter is “goods heavy”, it’s the first inflation gauge since the RBA’s rate cut earlier this month.

Australia's Cash Rate 2022

The RBA lopped 25 basis points off the cash rate to reduce it to 4.10 per cent

This was the first rate move since November 2023 and the first rate cut in more than four years.

However, governor Michele Bullock has warned under-the-pump Aussies will need to “be patient”, with the fight against inflation far from over.