Australian Inflation Slows to Near Two-Year Low, Reinforcing Expectations of No Further Rate Hikes

Australia’s inflation rate has slowed to a near two-year low in November, with the core gauge also experiencing a sharp decline. The softer-than-expected result has reinforced market expectations that interest rates will not need to rise any further. According to data from the Australian Bureau of Statistics, the consumer price index (CPI) rose at an annual pace of 4.3% in November, the slowest since January 2022. This is down from 4.9% in October and below market forecasts of 4.4%. The trimmed mean, a closely watched measure of core inflation, also dropped from 5.3% to 4.6%. The CPI excluding volatile items and holiday travel slowed to 4.8% from 5.1%. Analysts believe that if the fourth quarter inflation report confirms this trend, expectations of a rate cut from the Reserve Bank of Australia (RBA) could be moved forward to June. So far, the market reaction to the data has been muted, as liquidity is still thin in the new year. The Australian dollar remained flat, and three year bond futures gave up 3 ticks after the release of the data. The RBA has already raised interest rates by 425 basis points to a 12-year high of 4.35% since May 2022 in an effort to control rising prices. Governor Michele Bullock has warned of growing homegrown and demand-driven price pressures, despite inflation retreating from its peak in late 2022. Rents and electricity prices continue to contribute to inflationary pressures. Rent inflation accelerated to 7.1% in November, while electricity prices rose by 10.7% annually. Insurance prices also rose, increasing by 16.3% compared to the previous year.