October’s inflation rate grim news for mortgage holders

Australia’s inflation rate remains at the lower range of the Reserve Bank of Australia (RBA’s) target range, and has come in below market expectations. The monthly consumer price index (CPI) fell to a three-year low in the 12 months to October 2024, according to the latest data from the Australian Bureau of Statistics, coming in at 2.1 per cent, steady from September, Annual CPI inflation has fallen from 3.8 per cent in June to 2.1 per cent in October due, in part, to significant price falls in Electricity and Automotive fuel. Electricity fell 35.6 per cent in the 12 months to October, which is the largest annual fall in the electricity series ever recorded in the CPI. Automotive fuel prices fell 11.5 per cent over the past 12 months after repeated price falls in recent months. However, in bad news for mortgage holders, the annual trimmed mean inflation rate, which the RBA pays attention to in determining the cash rate, rose. Annual trimmed mean inflation, which strips out volatile aspects like electricity and fuel, was 3.5 per cent, up from 3.2 per cent in the previous month and similar to where it was in August. NED-9108-Monthly-Inflation-Indicator “The falls in electricity and fuel had a significant impact on the annual CPI measure this month. When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding volatile items and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending,”Michelle Marquardt, ABS head of prices statistics, said. The top contributors to the annual movement at the group level were food and non-alcoholic beverages which were up 3.3 per cent. Recreation and culture rose 4.3 per cent, and alcohol and tobacco costing consumers 6.0 per ent more in the 12 months to October. The October data follows September’s quarterly update which showed inflation had dipped into the central bank’s target range between 2 to 3 per since March 2021. According to the banks minutes of monetary policy released in November, the RBA may need to see more than one ‘good’ quarterly inflation report to consider easing policy. This means mortgage holders might need to wait until May 2025. While inflation has drastically declined over the prior year, falling from a peak of 7.8 per cent to 2.8 per cent as of the September quarter of 2024, the RBA said that underlying inflation remained too high, with staff forecasts predicting a sustainable return to target in 2026. A poll from Reuters published before the data was released had predicted the indicator would rise 2.3 per cent in the 12 months to October, up from 2.1 per cent in September. CBA Senior Economist Stephen Wu was slightly more bullish on his prediction saying the big four banks expected the monthly indicator to record annual headline inflation of 2.1 per cent in October, near the bottom of the Reserve Bank of Australia’s (RBA) target range of 2 to 3 per cent. The economist predicted this would be headlined by a fall in rents, electricity and hotel travel.