(Bloomberg) -- An important measure of Australian inflation slipped in November to edge closer to the central bank’s target band, suggesting that policymakers may have room to consider easing sooner than later. The currency fell.
The closely watched trimmed mean core measure, which smooths out volatile items and is the focus of the Reserve Bank’s attention, slowed to 3.2% from 3.5% in the prior month, data from the Australian Bureau of Statistics showed Wednesday.
The Australian dollar fell to 62.23 US cents after the data, from 62.40 prior. The yield on policy sensitive three-year government notes declined too while the benchmark equities index swung to gains. Money markets now see about 70% chance of a 25-basis-point reduction in the benchmark target rate in February from a 13-year high of 4.35%. A reduction is fully priced in for April.
Economists also expect the RBA’s next move would be to ease rates though they are divided on the timing given the somewhat sticky core inflation and an uncertain global backdrop. A complete suite of price data for the December quarter will be released later this month which will be an important input for the RBA’s Feb. 17-18 meeting.
The latest outcome will also provide some reprieve to the center-left Labor government which is lagging in polls as the electorate is frustrated with cost of living pressures and high interest rates. Australia will need to hold an election by May 17.
Treasurer Jim Chalmers welcomed November’s decline in underlying inflation in a post on X.
The RBA has kept rates unchanged since November 2023, and has been highlighting that aggregate demand still exceeds the economy’s supply capacity. Minutes of the December meeting showed the central bank is more confident that inflation is moving sustainably toward target but it’s still too soon to conclude the battle is won.
Members had noted that additional information on jobs, inflation and consumption, along with a revised set of staff forecasts, would be available by the February meeting, suggesting that next month’s review could be live.
Today’s report also showed:
- Headline inflation accelerated to 2.3% in the 12 months to November, from 2.1% in October
- The largest contributors to the annual print were food and non-alcoholic beverages, alcohol and tobacco, and recreation and culture
- Partly offsetting the rise in overall CPI were slower electricity and automotive fuel gains
- The housing group rose 1.2% in the 12 months to November, up from a 0.2% in October, largely due to the timing of payment of electricity rebates
- Annual rents rose 6.6% in November, following a similar annual gain of 6.7% in October, reflecting continued tight rental markets across the country
- New dwelling price rises slowed to 2.8%, following a 4.2% uptick in the 12 months to October. Annual new dwellings inflation is now the lowest since July 2021
- Separate release from the ABS showed job vacancies rose 4.2% in November, the first increase since May 2022
--With assistance from Yoshihiro Sato and Garfield Reynolds.
(Adds Treasurer Chalmers’ comment in sixth paragraph, and more details after eighth paragraph.)
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