October’s CPI data is unlikely to sway the RBA’s December monetary policy decision, but those predicting a rate cut in February are now entertaining the possibility of a delayed start to the easing cycle.
The Consumer Price Index (CPI) rose by 2.1 per cent in October, marking its slowest growth in three years. However, the annual trimmed mean inflation, which excludes volatile price movements, climbed 3.5 per cent, up from 3.2 per cent the previous month – indicating a slower-than-expected decline in underlying inflation.
AMP’s My Bui commented on the data, saying that the Reserve Bank (RBA) is likely to overlook this month’s CPI report because the October report only reflects about 60 per cent of the prices within the consumer basket and doesn’t include updated data for many service items.
She also said that the CPI indicator can be distorted by deflationary effects from electricity bill rebates and lower petrol prices, which have occasionally misled in the past.
“The RBA has expressed concerns about persistent underlying inflation pressures which are mostly measured by alternative measures which showed mixed signals this month,” Bui said.
Indeed, the data revealed that when excluding outliers such as a 36 per cent drop in electricity prices and a 12 per cent decrease in fuel costs, the monthly trimmed mean inflation ticked up to 3.5 per cent.
“While trimmed mean inflation still looks on track to come down to the RBA forecast of 3.4 per cent by the end of the year, it is coming down rather slowly, which means that there is a high risk of a later start to our forecast of a February rate cut,” Bui said.
The Commonwealth Bank of Australia (CBA), which recently revised its February cut forecast to May, agreed that the October CPI report won’t impact the RBA’s December decision.
“Today’s report has little to no bearing on the December monetary policy decision, which will be a straightforward on-hold decision,” CBA senior economist Stephen Wu said.
“The RBA will wait at least until the full Q4 24 quarterly inflation figures (29/1) ahead of their mid-February RBA board meeting (18/2), where staff will also present updated economic forecasts.”
Bendigo Bank’s chief economist David Robertson concurred that the latest inflation data supports a no-change decision for December. However, he said that more evidence could prompt the RBA to cut rates by May, as the worst of the cost-of-living shock fades.
“Markets had been expecting an RBA cut in February but have recently pared back these expectations and are now aligned to our unchanged view of the easing cycle starting in May,” Robertson said.
Robertson also highlighted external factors, such as Donald Trump’s latest tariff threats, which continue to add volatility to global markets. However, he doesn’t expect these to significantly impact the Australian economy or the RBA’s decisions in the next six months.
“[These factors] will most likely be a medium-term factor via our major trading partners in Asia,” Robertson said.
HSBC’s chief economist Paul Bloxham was the most hawkish in his assessment, saying on Wednesday that the latest data would likely reinforce the RBA’s view that underlying inflation remains too strong to align with its 2–3 per cent target.
“We expect that rate cuts are still quite some time away,” Bloxham said.
He further said that HSBC’s central forecast is for the RBA to hold off on rate cuts until Q2 2025, followed by a gradual easing phase. However, he also highlighted an increasing risk that the RBA may not cut rates at all in 2025, assigning a 25 per cent probability to this outcome.
