Moderate Inflation Raises the Case for Interest Rate Pause

The lower-than-expected growth in inflation has strengthened hopes about another interest rate pause by the Reserve Bank of Australia (RBA) in February. If volatile items such as automotive fuel, fruit and vegetables, and holiday travel were excluded from the monthly CPI indicator, inflation grew by 4. 8 percent in the year to November 2023, which was still lower than the annual rise of 5.

1 percent in October. Housing (up 6. 6 percent), food and non-alcoholic beverages (up 4.

6 percent), insurance and financial services (up 8. 8 percent), and alcohol and tobacco (up 6. 4 percent) were the main drivers of inflation in the month.

The ABS said the federal government’s cost of living measures had helped reduce the impact of price growth in some categories, such as housing and electricity. ANZ Bank economists said the drops in inflation in October and November would make it difficult for the Q4 2023 CPI indicator to surpass the RBA’s forecast of one percent, effectively prompting the bank to pause its interest rate hiking cycle. “Looking ahead, we expect quarterly CPI to be annualising within the RBA’s two to three percent target band in the second half of this year, opening the door for a shallow easing cycle to start in late-2024,” they said.

“Housing appears to be the category most likely to slow the ongoing decline in inflation, with rental vacancy rates remaining very low, housing construction costs picking up again, and the waning effect of government credits on electricity prices. ” Meanwhile, IG market analyst Tony Sycamore said a core inflation indicator of below 5 percent would strengthen expectations of an interest rate cut in 2024. “If (December quarter inflation data) .

. . paints a similar picture, there is a good chance that expectations of the RBA’s first rate cut are brought forward to June, with a third rate cut added into the rates market for 2024,” he said in a note.

“Inflation is still higher than we would like, but monthly inflation is around half of its peak and much lower than the 6. 1 percent we inherited at the time of the election. ” Nevertheless, the treasurer stated that combating inflation remained the Labor government’s highest priority and that it had the right economic plan to navigate the challenges and maximise the opportunities of the coming year.

Meanwhile, Shadow Treasure Angus Taylor said the Australian economy had been in poor shape in 2023. “Charity organisations and community groups saw unprecedented demand for assistance from people who never needed help before. “Christmas was particularly difficult, as people were forced to make difficult choices about what they could and couldn’t afford.

” Mr. Taylor also accused the Labor government of “doing nothing” to help the ailing economy since its election. “The Albanese Labor government has been asleep at the wheel when it comes to the economy,” he said.

“It’s clear they’re just not interested because, over the last 18 months, they’ve been distracted by other issues like the failed Voice referendum, which cost taxpayers nearly half a billion dollars. ”.