Australian headline inflation held firm at 2.5% y/y in January. The result split the middle of our 2.4% forecast and the market consensus for a 2.6% rise. Food, alcohol, tobacco, and housing were the largest contributors. Stripping out some volatility, annual trimmed mean inflation ticked up to 2.8% y/y from 2.7% in December.
The Numbers:
Headline inflation was held at 2.5% y/y in January. In seasonally adjusted terms, prices rose 0.7% on a rolling quarter-on-quarter basis. Stripping out fuel, fruit, vegetables and holiday travel, inflation rose to 2.9% y/y from 2.7% in December. The trimmed mean information rose to 2.8% from 2.7% previously.
Cost-of-living supports commenced in July, including universal energy rebates. These helped push electricity prices down 11.5 y/y. Excluding these supports, electricity prices would have fallen 1.2%. Goods inflation rose to 1.8% y/y in January from 1.4% in December. Meanwhile, services ination eased to 3.6% from 3.7%.
Tradables ination, where prices are primarily driven by movements overseas, fell to 1.1% from 1.4% in December. Non-tradable ination, where domestic pressures tend to drive price movements, rose to 3.5% from 3%.
Behind the Numbers:
Hot on the heels of last week’s interest rate cut, January’s headline inflation was held at the mid-point of the Reserve Bank of Australia’s target band. The print was a smidge lower than the consensus forecast for a 2.6% rise. Meanwhile, measures of underlying inflation edged higher, with annual trimmed mean inflation up to 2.8% from 2.7% and the measure of inflation excluding volatile items rising to 2.9% from 2.7%.
The January inflation print broadly backs up the RBA’s decision to cut rates last week. After 425 basis points of hikes since May 2022, the RBA lowered the cash rate to 4.1% from its extended sojourn at 4.35%. But in announcing the easing, the board emphasised the lingering risks clouding the inflation outlook; absent the first line confirming the cut, you’d be forgiven for thinking the statement was announcing a hold or hike.
The uptick in underlying inflation and last week’s solid jobs print reinforce those reservations. Another 44,000 jobs were added to the economy through January, building on the 60,000-strong surge in December. While weaker-than-expected wage growth largely trumps the risk that the still-tight labour market could feed into unsustainable wage and price gains, that risk prohibits any declaration that the fight against inflation is over. For that reason, we expect only modest easing through this year, with the next rate cut not on the agenda until July.
Cejay is a Content Producer for Supply Chain Channel, Australia's learning ecosystem created to fill the need for information, networking, case studies and empowerment for everyone in the supply chain sector.
