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.
