Annual inflation has nearly halved in just 12 months, the sharpest drop in recent history, according to fresh data.
The Consumer Price Index (CPI) rose 0.6 per cent in the December, 2023 quarter and 4.1 per cent annually, according to the data from the Australian Bureau of Statistics (ABS).
ABS head of prices statistics Michelle Marquardt said this was the smallest quarterly rise since the March, 2021 quarter.
“While prices continued to rise for most goods and services, annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.”
Financial markets had largely expected headline inflation to come in at 4.3 per cent.
The faster-than-expected fall has strengthened hopes the RBA will not move interest rates when it meets next week, and that cuts are ahead.
CoreLogic head of research Eliza Owen said the more inflation came in under expectations, “the firmer the case for interest rates remaining on hold next week and coming down later this year”.
“A reduction in interest rates is likely to boost housing demand. As seen in the rental market, fundamental demand for housing is very strong but demand for home purchases has been influenced by high interest costs and limited borrowing capacity,” she said.
“The RBA would probably not consider more exuberance in the housing market an ideal scenario if interest rates came down.
“However, established home purchases do not feed directly into inflation measures and other macroprudential tools can still be used to ensure housing lending remains prudent.”
The most significant contributors to the December quarter rise were housing (1 per cent), alcohol and tobacco (2.8 per cent), insurance and financial services (1.7 per cent), and food and non-alcoholic beverages (0.5 per cent).
Housing was driven by new homes purchased by owner-occupiers (up 1.5 per cent), rents (0.9 per cent) and utilities (0.6 per cent).
Marquardt said: “Higher labour and material costs contributed to price rises this quarter for construction of new homes.
“The 1.5 per cent increase is slightly higher than the 1.3 per cent rise in the September, 2023 quarter.”
All groups CPI, quarterly and annual movement
Rental prices rose 0.9 per cent for the quarter, after a 2.2 per cent rise in the September quarter.
The rate of quarterly growth was moderated by changes to Commonwealth Rent Assistance, the ABS said.
Excluding the changes to rent assistance, rental prices would have increased by 2.2 per cent in the December, 2023 quarter.
Tobacco rose 7 per cent, following the introduction of the 5 per cent annual tobacco excise indexation and biannual Average Weekly Ordinary Time Earnings increase, which were both applied on September 1, 2023.
Insurance had a strong quarterly movement of 3.8 per cent, following the 2.8 per cent rise in the September 2023 quarter.
“The increase in insurance was due to higher premiums across motor vehicle, house and home contents insurance,” Marquardt said.
“During the past 12 months, insurance rose 16.2 per cent, making it the largest annual rise since March, 2001.”
Food and non-alcoholic beverage prices rose this quarter, although the rise was the smallest since September, 2021.
The rise was driven by meals out and takeaway foods (up 0.9 per cent), food products not elsewhere classified (1.9 per cent), and bread and cereal products (1.9 per cent).
Partially offsetting the quarterly rise were price falls for meat and seafood (-1.2 per cent), and fruit and vegetables (-1.2 per cent).
Annually, the CPI rose 4.1 per cent, with housing (up 6.1 per cent), food and non-alcoholic beverages (up 4.5 per cent), and alcohol and tobacco (6.6 per cent) contributing the most.
Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI.
Annual trimmed mean inflation was 4.2 per cent, down from 5.1 per cent in the September quarter.
This is the fourth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December, 2022 quarter.
The ABS also released the monthly CPI indicator for December, which rose 3.4 per cent in the 12 months to December, compared to a rise of 4.3 per cent in the 12 months to November.
The most significant contributors to the rise were housing (up 5.2 per cent), food and non-alcoholic beverages (up 4 per cent), alcohol and tobacco (up 6.8 per cent), and insurance and financial services (8.2 per cent).
