In yet another twist to the inflation story that has been running for the last 18 months or so, Australia's inflation rate slowed more than expected in October, offering the prospect of a pause in interest rate rises from the Reserve Bank of Australia (RBA) and momentary pre-Christmas respite for households and businesses.
Lower than anticipated
The latest data from the Australian Bureau of Statistics (ABS) indicates a dip in the annual inflation rate to 4.9% in October, a considerable decline from the 5.6% rate in September and lower than the 5.2% economists had anticipated.
The news, seen as a positive sign by analysts, comes after a period of fluctuating inflation rates throughout the year.
Tony Sycamore from IG Australia remarked on the noticeable relief this brought: "The breath of relief from the RBA's Martin Place HQ and mortgage holders nationwide was almost audible in the streets of Sydney."
Word from the RBA governor Michele Bullock focused on how households are dealing with the rate hike pain we’ve seen since 2022. She acknowledged the challenges posed by the central bank's swift rate increases but told the HKMA-BIS High-Level Conference in Hong Kong that Australian households are overall faring well.
Bullock continued the bank's line that large savings buffers built up during the pandemic had largely remained intact, and a surprising rise in housing prices had contributed to a sense of increased wealth among Australians.
She did concede, however, that the rapid rate hikes had uneven impacts on households, presenting some economic and political challenges.
The ABS's monthly Consumer Price Index (CPI) data showed that housing, food and non-alcoholic beverages and transport costs were primary drivers of inflation.
The RBA's preferred annual trimmed mean inflation measure for October was at 5.3%, slightly down from September but still above the target range of 2-3%.
On the consumer front, October's retail sales report revealed a 0.2% decrease in spending, signalling a cooling in consumer activities even with Christmas on the horizon.
Broader economic slowdown
This, coupled with the latest inflation data, suggests a broader economic slowdown.
Government subsidies played a significant role in tempering certain price increases, particularly in the housing and energy sectors.
Conversely, tobacco prices saw a notable increase due to excise indexation and wage earnings increases.
Chiming in with his decidedly pro-business perspective was Gerry Harvey, chairman of Harvey Norman, who emphasised the necessity for businesses to pass on rising costs to customers to avoid bankruptcies, despite warnings from the RBA that this could contribute to sustained inflation.
Looking ahead, the RBA faces the delicate task of curbing inflation without excessively raising unemployment rates.
The bank does not anticipate a return to its target inflation range until late 2025, following a series of 13 rate hikes since May 2022.
This balancing act underscores the complexities of Australia's current economic landscape, marked by intertwined factors of consumer behaviour, government interventions and market dynamics.