Inflation rose from 2.1% to 2.3% in 12 months to November

ABC NEWS (Australia)

Inflation has edged up in November but the RBA's preferred measure of underlying or core inflation fell from 3.5 per cent in October to 3.2 per cent in the year to November.

Transcript

00:00Core inflation takes off the most volatile price movements in the period.

00:07So for example, if petrol goes up 5% during the period, then we take that out.

00:13So when we take those more volatile price changes out, we get what we call an underlying

00:17measure of inflation.

00:19And that's much more stable and gives us a better idea of the trends in inflation rather

00:23than it moving around a lot.

00:25And what's happened with underlying inflation over the past couple of years?

00:31Well underlying inflation rose significantly in 2022, similar to headline inflation, but

00:36it didn't peak quite as high.

00:38So it didn't quite capture all those very, the largest price increases, but it has come

00:43down more slowly than headline inflation as well.

00:46So for example, in the November data today, headline inflation was 2.3% while the trimmed

00:52mean inflation was 3.2%, but the good news is that it has been declining.

00:59And so how significant is it that there's been this 0.3% fall?

01:05Well look, this is the monthly CPI inflation indicator.

01:09So the more important measure is the quarterly one, which we get on the 29th of January ahead

01:15of the RBA's February meeting.

01:17But all the information we get in today's release does let us make a more accurate forecast

01:23of what we expect for that Q4, so the December quarter CPI number, which we get at the end

01:29of this month.

01:30So we were able to get a lot of data on things like fuel and food and insurance and holiday

01:37prices and all those things that gives us an idea of what Q4 as a whole might look like.

01:43So what effect will this have on the Reserve Bank's next decision on interest rates and

01:48that next figure, as you mentioned, coming up soon that we've got a better idea about now?

01:53Well, the RBA's trimmed mean, so that underlying or core inflation forecast for Q4 at the moment

01:59is 0.7% over the quarter and 3.4% over the year.

02:04The data today suggests that there is downside risk to that forecast.

02:09So it's likely that the Q4 numbers will come in lower than expected.

02:14Now that's a good sign when inflation is coming down more quickly than the RBA expects and

02:19coming back down to their target band more quickly.

02:22That makes it more likely that we see rate cuts come through sooner rather than later.

02:26Yeah.

02:27And so for all those people out there trying to pay off a mortgage at the moment, they're

02:31really keen to find out when a rate cut is likely.

02:36What's your tip on now on when that's going to happen?

02:40Look, we're expecting that the first rate cut will be in May, but today's data does

02:47suggest that the probability of Feb has risen.

02:50But the RBA doesn't only look at the inflation data.

02:54So it also looks at what's happening in the labour market, what's happening with spending

02:57as well.

02:58And in the labour market, we've seen quite a bit of resilience.

03:01So unemployment fell to 3.9% in November, and today's data showed that job vacancies

03:07increased for the first time since mid-2022.

03:11So that might give the RBA a little bit of concern that that resilience in the labour

03:15market might mean that inflation is a bit higher than it would be otherwise.

03:22We'll also get some retail spending data out tomorrow, which will capture some of those

03:26Black Friday sales.

03:27That's also something the RBA is looking at when it thinks about setting rates.

03:32It's happy for households to go out and spend a bit, but it doesn't want households to go

03:35out and spend a lot because that makes it harder to bring inflation down.

03:39So inflation is not the only data point that the RBA is looking at as to when it starts

03:44to cut rates.

03:45And with the federal election almost upon us sometime soon, how do you rate how this

03:50Albanese government has managed the economy, especially in the face of what's been happening

03:55with interest rates over the last three years?

03:57Look, it has been a very hard time, so I won't make a judgment on that.

04:04But we have seen that some of the cost of living relief measures from both the federal

04:09government and other state governments as well have made an impact on inflation.

04:14So for example, they've brought electricity prices down quite significantly over the past

04:19few months.

04:20In November, we saw a bit of a rise and some of those rebates are starting to get used

04:25up.

04:26But I think the key point for Australian households and businesses is that we should be getting

04:31through the toughest part already.

04:34And there are some positive signs for 2025 that things will be getting better.

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