Australian headline CPI remained at a 2.5%yr pace in January, holding steady against an expected rise to 2.6%. Meanwhile, the various measures of underlying inflation firmed slightly at the start of the year. Today's report is of little consequence for the local rates outlook. The RBA will need to see disinflationary progress sustained across the first quarter to lower rates again, unlikely to occur before the May meeting.
Seasonal factors saw January prices decline by 0.2% on falls across items including clothing and footwear, international holiday travel and household contents. Additionally, fuel prices declined by 1.4%. Prices in January fell by 0.3% in 2023 and 2024. The main item pushing up on inflation in early 2025 was electricity prices, measured to risen by 8.9% due largely to a state government rebate scheme in Queensland being used up by many households.
Rents rose 0.3%m/m but the annual pace has slowed to 5.8% - its slowest since March 2023 - reflecting a softening in capital city vacancy rates. Meanwhile, new dwelling prices at 2%yr are at their slowest pace since mid-2021, with developers increasing incentives and promotions.
Goods prices firmed 0.2% in January to rise from 1.4% to 1.8%yr on base effects (goods prices fell 0.2% in January 2024). Services prices were reported to have declined by 0.7% - their largest one-month fall since October 2023 - softening from 3.7% to 3.6%yr; however, being the front month for the full quarterly CPI release, the January report contains only a small range of service price updates. The key movement here was international holiday travel, down 16%m/m due to lower demand in the off-peak season in the northern hemisphere.
Inflation in underlying terms ticked up in January from 2.7% to 2.8%yr on the trimmed mean measure and from 2.8% to 2.9%yr for CPI excluding volatile items and holiday travel. Today's report confirms that underlying inflation pressures remained more elevated than the headline CPI in early 2025. RBA Governor Bullock last week said the Board will be watching for more progress in underlying inflation as a key indicator for upcoming policy decisions.
