Australian consumer price inflation remained at a three-year low in October as government rebates pushed down electricity and rental prices, although core inflation rose in a sign of continued cost pressures elsewhere.
Data from the Australian Bureau of Statistics on Wednesday showed the monthly consumer price index rose at an annual rate of 2.1% in October, unchanged from September and below market forecasts of 2.3%.
Compared to the previous month, it fell by 0.3%.
The adjusted mean – a widely followed measure of core inflation – rose to 3.5% year-on-year from 3.2% in September. This puts it further above the Reserve Bank of Australia’s target range of 2% to 3% and represents a barrier to interest rate cuts.
The report for October – the first month of the quarter – does not contain price updates for a range of services of greater interest to the central bank and is therefore expected to have limited influence on monetary policy. The bank has said monthly reports tend to be volatile.
Markets have not fully priced in a rate cut until May next year, with the chance of a rate hike in December at just 14%.
The Australian dollar was little changed at $0.6474 after the data release, while three-year bond futures held on to earlier gains, rising two ticks to 96.02.
The central bank has kept interest rates constant for a year. It believes the key interest rate of 4.35% – which was at a record low of 0.1% during the pandemic – is restrictive enough to bring inflation into the target range while protecting employment.
The RBA has said it would have to watch for more than a good quarterly inflation result – one reason why markets are pricing in just a 27% chance of a cut in February following the release of the fourth quarter CPI report.
Electricity subsidies from the federal and state governments have reduced prices again by 12% this month, and rents have also fallen by 0.3% compared to September thanks to government relief.
Excluding volatile items and leisure travel, the annual CPI fell to 2.7% from 3.0% in September.
**Identify and explain the dilemma faced by the Reserve Bank of Australia (RBA) in light of the recent inflation data.**
## World Today News Interview: Australia’s Inflation Dilemma
**Featuring:**
* **Dr. Evelyn Grant:** Economist specializing in Australian macroeconomic trends.
* **Mr. David Thompson:** Financial analyst focusing on monetary policy and market reactions.
**Host:** Welcome to World Today News. Today, we’re discussing the latest Australian inflation figures and their implications for the economy. Joining us are Dr. Evelyn Grant, an economist specializing in Australian macroeconomic trends, and Mr. David Thompson, a financial analyst focusing on monetary policy and market reactions.
**Introduction:**
**Host:** Dr. Grant, the data shows Australian consumer price inflation remained at a three-year low in October, but core inflation rose. What is your take on these seemingly contradictory figures?
**Dr. Grant:** This highlights the complex nature of inflation. While headline inflation is being subdued by temporary factors like government subsidies, underlying price pressures persist, especially in core areas like services. This suggests the battle against inflation is far from over.
**Section 1: Drivers and Implications of Subdued Headline Inflation:**
**Host:**
Mr. Thompson, government rebates have played a significant role in pushing down electricity and rental prices. How sustainable is this impact on inflation, and what are the potential consequences?
**Mr. Thompson:** These rebates provide temporary relief, but they are not a long-term solution to underlying cost pressures. If these subsidies are phased out, we could see a resurgence in inflation, potentially impacting consumer spending and economic growth.
**Host:**
Dr. Grant, how might these lower inflation figures impact consumer behavior and spending?
**Dr. Grant:** Consumers may feel more confident spending if they perceive inflation as under control. However, the persistence of rising core inflation could eventually erode this confidence, as people anticipate future price increases.
**Section 2: Rising Core Inflation and the Dilemma for the RBA:**
**Host:**
Mr. Thompson, core inflation, a key indicator for the RBA, has risen further above the target range. How does this complicate the central bank’s decisions regarding interest rates?
**Mr. Thompson:** It creates a dilemma for the RBA. They want to avoid stifling economic growth, but they also need to maintain price stability. With core inflation continuing to rise, the pressure to consider rate hikes later in the year might increase, even though economic growth is slowing.
**Host:**
Dr. Grant, the RBA has maintained a consistent interest rate for a year. What factors might sway their decision in the near future?
**Dr. Grant:** The RBA will closely monitor upcoming quarterly inflation data, particularly for services. If core inflation remains stubbornly high, they may feel compelled to raise rates despite the risk to economic growth. The RBA will also be watching for any signs of a resurgence in wage growth, which could further fuel inflation.
**Section 3: Market Reactions and Outlook for the Future:**
**Host:**
Mr. Thompson, how have financial markets reacted to the October inflation data?
**Mr. Thompson:** Markets haven’t fully priced in an interest rate cut until May next year, suggesting a wait-and-see approach. There is stillUncertainty about the future path of inflation and the RBA’s response.
**Host:**
Dr. Grant, what is your outlook for Australian inflation in the coming months?
**Dr. Grant:** I expect inflation to remain sticky in the near term, with core inflation persisting above the RBA’s target range. The ongoing energy transition, supply chain disruptions, and potential wage pressures could all contribute to sustained inflationary pressures.
**Conclusion:**
**Host:**
Thank you both for providing such insightful analysis. As we navigate these complex economic times, it’s clear that the RBA faces a delicate balancing act, and these inflation figures will be closely scrutinized in the coming months
