Core inflation in Australia has fallen to a better-than-expected 3.2 per cent for the December quarter, boosting hopes of an interest rate cut next month.Economists had predicted the trimmed mean – the Reserve Bank's preferred measure of underlying inflation – would come in at 3.3 per cent, while the central bank itself had previously forecast it would be 3.4 per cent.However, new data from the Australian Bureau of Statistics released today had it at 3.2 per cent, a drop from a revised 3.6 per cent the previous quarter.
Inflation slowed more than economists expected in December. (Louie Douvis)"It's the lowest end of what some of the banks were saying it would be," 9News chief political editor Charles Croucher said."If you are a mortgage holder or a small business owner, this is about as good a set of numbers as you could have asked for."Headline inflation also slowed significantly to 2.4 per cent, down from 2.8 per cent in the September quarter and the lowest level since March 2021.That fall was driven by a drop in housing and transport costs, as well as the federal government's energy bill relief."The 2024-25 Commonwealth Energy Bill Relief Fund rebates led to a large fall in electricity prices this quarter," ABS head of prices statistics Michelle Marquardt said."Electricity prices fell by 9.9 per cent in the December 2024 quarter, following a fall of 17.3 per cent in the September 2024 quarter."Without the rebates, electricity prices would have risen 0.2 per cent this quarter."Prior to the release of the inflation figures, Australian investors had priced in an 84 per cent chance of a rate cut when the RBA hands down its first decision of the year on February 18."The slightly lower-than-expected Q4 inflation data opens the door for a February RBA rate cut, and validates our forecast of three cuts in 2025," Bendigo Bank chief economist David Robertson said.
Michele Bullock will hand down the RBA's next interest rates decision on February 18. (Louie Douvis/AFR)"Both headline and core inflation were 0.1 per cent lower than consensus (at 0.2 per cent and 0.5 per cent respectively) making the six-month annualised inflation rate safely within the RBA target band…"An RBA cut on February 18 is now the most likely outcome, although we continue to suggest that this will be a shallow easing cycle, given a 'neutral' cash rate is 3.5 per cent."However, the RBA is yet to even consider a cut at its recent meetings, and some economists say there's a chance the cash rate remains at its current 13-year high of 4.35 per cent."A rate cut is still on the table for the February RBA policy meeting, with the likelihood evenly split but skewing slightly towards a hold in our opinion," RSM Australia's Devika Shivadekar said."The RBA would probably yet again err on the side of caution and insist on ensuring a 'sustainable' decline in trimmed mean inflation, preferring to wait for that one additional data point for confirmation."However, the broader disinflationary trend is unmistakable."
