Australian headline CPI eased from 2.5% to 2.4%yr in February, defying expectations to remain at an unchanged pace. The measures of underlying inflation generally cooled as well. Sustained disinflationary progress in early 2025 will keep pricing for a May RBA rate cut well supported.
According to the ABS's monthly gauge, prices in February were flat (0%) following a seasonally-related decline in January (-0.2%). Today's print supports the view that the disinflationary progress seen over the back half of last year, which opened the door to the RBA cutting rates at the February meeting, has continued in early 2025. Emphasising this, inflation is either within or below the 2-3% target band in 12-month (2.4%) and 3-month (2.3%) and 6-month annualised terms (1.6%).
Underlying inflation is also within the band at 2.7%yr on a trimmed mean basis, down from 2.8% in January. Meanwhile, broader measures that exclude volatile items (fuel, fruit and vegetables and holiday travel) also have underlying inflation running at 2.7%, little changed over recent months.
Major price movements in February were mainly seen in the volatile items. Electricity pushed down on inflation due to prices falling by 2.5% in the month, driven by rebates in Victoria. Domestic holiday travel saw a 10.1% fall post the peak summer holidays. Prices for many items in the grocery basket saw modest falls in February; as a result, food inflation eased from 3.3% to 3.1%yr. Meanwhile, new dwelling costs fell 0.1% for the second month running. Price rises in February were led by fuel (1.2%), with clothing and services categories also contributing.
Overall, goods inflation slowed from 1.8% to 1.3%yr but is up from lows around 0% in late 2024. Services prices held a 3.6%yr pace, a low since late 2022.
