Australia: Inflation declines to lowest level in over three years in September
Latest reading: Inflation dropped to 2.1% in September from August’s 2.7%, inching closer to the lower bound of the 2.0–3.0% target band of the Reserve Bank of Australia (RBA). September’s figure marked the lowest inflation rate since July 2021 and surprised markets to the downside. The moderation was broad-based, spearheaded by a steeper decline in communication and transportation prices. Moreover, price growth eased for food and beverages, housing and utilities, and recreation.
Accordingly, the trend pointed down, with annual average inflation falling to 3.5% in September (August: 3.8%). August’s result marked the weakest reading since March 2022. Meanwhile, inflation excluding volatile items and holiday travel dropped to 2.7% from August’s 3.0%.
Lastly, consumer prices fell 0.16% month on month, which was sharper than August’s 0.08% decline.
Outlook: After an expected uptick in Q4, inflation is forecast to resume a downward trend in 2025: Price pressures will return to the RBA’s target range next year, tempered by tight monetary policy and a high base effect. That said, stronger economic activity will limit the slowdown. Accelerating wage growth and a weaker-than-expected Australian dollar are upside risks.
Panelist insight: UOB’s Sue Ann Lee commented on the implications for the RBA’s pivot:
“All in all, the latest inflation figures are certainly a relief for the Reserve Bank of Australia (RBA). That said, the latest slew of inflation numbers follows an extremely strong labour market report earlier this month. […] Our long-held view was for the RBA to start its rate cut cycle with a 35 bps reduction in Nov. While 4Q24 is still a possibility, we are now pushing back our first rate cut forecast to Dec. There are encouraging signs on wage growth and rental vacancies that temper the upside risks to the inflation outlook but we expect the RBA will want more evidence and to wait for prices pressures to dissipate before moving.”
David Seif and Andrew Ticehurst, analysts at Nomura, were more hawkish:
“Overall, we think the September and Q3 CPI data indicate some further, and pleasing, progress in the battle to bring inflation back under control. […] But equally, it seems clear that we are not quite there yet. The headline CPI was dragged lower by (volatile) lower fuel prices and by temporary Commonwealth and State government subsidies to consumers, and services inflation remained uncomfortably sticky. […] All up, we think the RBA remains on track to lag peer central banks and not deliver a first policy easing until February.”