Australian inflation has returned to the Reserve Bank of Australia’s (RBA) 2-3% target range for the first time since March 2021, driven by a substantial decline in energy and fuel prices. The Australian Bureau of Statistics (ABS) announced that the Consumer Price Index (CPI) rose by just 0.2% in the September 2024 quarter, bringing annual inflation to 2.8%, up from 3, 8% of June.
Despite this milestone, a rate cut remains unlikely in the immediate future. Core inflation, measured by the trimmed average, fell to 3.5% annually, indicating persistent underlying pressures, particularly in services sectors such as rent and childcare. Michelle Marquardt, head of price statistics at ABS, noted: “The September quarter increase of 0.2% is the lowest since June 2020, mainly due to government energy rebates.” Without these discounts, electricity prices would have increased by 0.7%.
Key factors contributing to the easing of inflation included a record 17.3% quarterly decline in electricity prices and a 6.7% decline in automotive fuel prices, following the implementation of interventions governments and the reduction in global oil prices. However, services inflation increased slightly to 4.6%, with costs rising for insurance, rental housing and childcare.
Jim Chalmers, the federal treasurer, pointed out that the decline in core inflation shows broader economic relief that goes beyond just government rebates. “Our energy rebates are helping, but the underlying pressures in the economy are easing considerably,” Chalmers noted.
Economists remain divided over the RBA’s next steps. While Deloitte’s Stephen Smith says the data reinforces the case for rate cuts, others warn that the RBA may wait until core inflation trends are more sustainably within the target range. Currently, markets are pricing in a modest possibility of an interest rate cut by early next year, although February or May 2025 are considered more likely.