It’s hard to think of better news to start the year for Aussie households, businesses and the Reserve Bank of Australia according to Moody’s Analytics on the early indicators for the next Australian Consumer Price Index.
Headline inflation dropped to 4.3% y/y in November, taking it to its lowest point since January 2022. Better still, measures of underlying inflation, which strip out volatile items such as fuel and holiday travel, are also retreating at pace. And for a cherry on top, prices are actually falling in two of the eleven price baskets.
Still, we should be cautious. Some of the improvement came from temporary government supports and rebates aimed at easing cost of living pressures. The Commonwealth Rent Assistance program cut 1.7% from annual rent increases, while the introduction of the Energy Bill Relief Fund rebates effectively halved the increase in electricity prices.
On top of that, retailers went into overdrive in the Black Friday sales this year, offering bigger and wider discounts than November 2022. This helped ease inflation this year, but its impact will be fleeting.
Still, none of that negates the exceptional news coming from the November inflation print. The data confirms our view that interest rates won’t rise any further this year.
That said, households and businesses will likely have to wait until the September quarter before borrowing costs move lower, with still-sticky services inflation and the upcoming stage three tax cuts being a handbrake on inflation’s downtrend.
