Australian CPI 2.3% in November

This morning's monthly Australian CPI inflation report for November drove a modestly dovish reaction in markets (softer AUD and lower bond yields), with a decline in underlying or trimmed mean inflation to 3.2% (from 3.5%) outweighing a stronger than expected rise in headline CPI from 2.1% to 2.3% (vs 2.2% consensus). The moves also came despite national job vacancies snapping an extended run of declines since mid-2022 to rise by 4.2% for the 3 months to November, pointing to signs of the labour market retightening. Market pricing for an RBA rate cut in February firmed to around 70%; however, the full quarterly CPI report for Q4 (due 29 January) will hold far more weight with the Board than today's release.    

Headline CPI ticked up from 2.1% to 2.3%yr in the ABS's monthly series in November, rising mainly on higher electricity and fuel prices. Timing differences between when the various federal and state government electricity rebate schemes have been applied drove a spike in the ABS's calculation of electricity prices in November (22.4%), even though the underlying price of electricity was little changed (see charts below). Fuel prices moved slightly higher in November (0.9%) - their first rise in 5 months - to also contribute to the lift in the headline CPI rate, though prices are still down more than 10% on a year ago.  

Looking at other key items, rents eased from 6.7% to 6.6% but remained elevated; however, there was better news in new home building costs as the inflation rate slowed from 4.2% to 2.8% - a low since July 2021 - with home builders offering discounts and other incentives. 

Grocery price inflation eased from 3.3% to 2.9%yr, its slowest pace since the start of 2022 as elevated inflation in volatile fruit and vegetable prices softened from 8.5% to 6%yr. This offset a lift in meat prices (1.3% to 2.4%yr). 

There was a notable slowing in holiday travel and accommodation costs from 8% to 3.8%yr as off-peak demand for destinations including Europe and north America led to discounting on airfares. 

Insurance costs looked to be easing into year-end slowing to 11%yr in November. That is down from an earlier peak of 16.5% in April 2024 after insurance premiums surged due to higher reinsurance, natural disaster and claims costs.  

Australian dwelling approvals ease back in November

Australian dwelling approvals eased from a near 2-year high in November after declining by 3.6% month-on-month (vs -1.0% expected). Approvals trended higher through 2024 but remain at low levels reflecting the impacts of higher interest rates and capacity pressures in the home building sector. The house or detached segment has driven the uptrend in approvals; however, house approvals saw back-to-back declines for the first time since early-mid 2023. A 5.6% decline in unit or higher-density approvals also contributed to the fall in headline approvals. 

Headline dwelling approvals fell by 3.6% in November as approvals declined in both the house (-2.2%) and unit segments (-5.6%). Approvals were coming off strong gains in September (5.4%) and October (5.2%). For the 3 months through November, approvals averaged 15.1k - a high back to December 2022, and 16.4% above the cycle low from March 2023 (13k). 

House approvals fell 2.2% in the latest month following a 3.8% fall in October, their first back-to-back declines in nearly 18 months. The state level data indicates the declines have been broad based across the nation. 

In the alterations segment, the value of work approved remained elevated near the end of 2024 at $1.1bn. Although the volume of alteration work being done has been retracing from the highs associated with the HomeBuilder stimulus during the pandemic, cost increases have kept the value of alteration approvals high. 

Using 3-month averages to smooth the volatility, higher-density approvals - notwithstanding November's decline - have shown some encouraging signs. This has come mainly off the back of an uptick in high-rise approvals.