Australia's inflation stagnates as RBA stays cautious on interest rates

In October 2024, Australia's consumer price index recorded a steady inflation rate of 2.1%, remaining well within the Reserve Bank of Australia's targeted range of 2%-3%. The inflation figure follows a consistent decline over five months, indicating that the prices are moderating. While economists had anticipated a slightly higher inflation rate of 2.3%, the actual figure was supported by significant decreases in specific sectors, such as electricity and transport fuel. Electricity prices fell by 35.6% year-over-year due to government rebates, while transport fuel prices decreased by 11.5%, attributed to global oil price drops influenced by reduced Chinese demand and easing tensions in the Middle East. The core measure of inflation, the trimmed mean, showed an increase to 3.5% in October from the previous month's 3.2%. This underlying inflation rate is viewed as a more reliable gauge by the RBA for assessing sustained inflation trends. Increases in food prices and rent were observed, with food and non-alcoholic beverage prices rising by 3.3% and rents climbing 6.7% compared to October 2023. The ongoing challenges in inflation management reflect a complex balance of factors affecting consumer costs and overall economic stability. The Reserve Bank has maintained a cash rate at 4.35%, with market predictions indicating a low likelihood of a cut to 4.1% in December 2024. Investors are cautious about potential rate adjustments, with many suggesting a more vigilant approach from the RBA until it witnesses a clear deceleration in underlying inflation. The RBA is particularly focused on the trimmed mean rate as it considers future monetary policy changes. The board may act before this core measure falls below 3%, but only if they are assured of a downward trend in inflation. Overall, while the inflation data has resulted in a momentary easing of pressure on the RBA to act, the central bank continues to tread carefully, weighing the implications of global influences and domestic economic factors on future interest rate decisions.