Headline inflation returned to lows since early 2022 in October, reversing the increases of the past couple of months. Inflation fell from 5.6% in September to 4.9% in October, driven by sharp rises in fuel and energy prices from this time last year falling out of the 12-month calculation, while the federal government's assistance package eased rent inflation. As a result of all this, annual inflation - while still very high - dropped sharply for fuel (19.7% to 8.6%) and electricity (18% to 10.1%) and moderated for rents (7.6% to 6.6%). However, rises in both food (4.7% to 5.3%) and health costs (5.4% to 6.3%) meant cost of living pressures remained on households.
Stepping back, disinflation in goods prices looked to resume falling from 5.7% to 4.6%, driven by clothing and footwear (-1.5%). Services inflation - a key focus for the RBA - softened from 5.3% to 5%, still elevated but cooling nonetheless to an 11-month low. High services inflation is reflected in what RBA Governor Bullock recently referred to as 'homegrown' sources of inflation. Here, non-tradables prices (6%) far outpaces inflation in tradables (2.5%), whose prices are driven by global factors.
Underlying inflation showed signs of easing across the various measures in October. The trimmed mean rate slowed from 5.4% to 5.3%; CPI excluding volatile items (food and energy) came in from 5.3% to 4.7%, and if holiday travel is also removed, underlying inflation on that basis was 5% from 5.4% previously.