Australian CPI slows to 4.9% in October

Australian CPI inflation fell back to 4.9% in October, declining from 5.6% in September to be in line with its recent low. This surprised to the downside of expectations (5.2%), likely confirming an unchanged stance on rates from the RBA next week (4.35%) going into its summer break. But the RBA is likely to retain its hawkish messaging due to elevated underlying and services inflation, though both showed signs of easing.    

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.