Inflation slows slightly – what does this mean for you?

Newly released data shows that Australia’s inflation rate has eased slightly. But it’s not yet clear whether this will be enough to curb the likelihood of another interest rate hike.

The monthly Consumer Price Index (CPI) indicator from the Australian Bureau of Statistics (ABS) rose 6.9 per cent in the year to October 2022, which is lower than the 7.3 per cent movement in September 2022.

According to the ABS, food and non-alcoholic beverage prices eased from an annual rise of 9.6 per cent in September to 8.9 per cent in October. Of special note were fruit and vegetable prices, which rose by 9.4 per cent in October, down from 17.4 per cent in September, partially due to improved growing conditions and increased supply.

Travel and accommodation prices were also found to have eased from an annual rise of 12.6 per cent in September to 3.7 per cent in October, in part due to school holidays ending and Europe and America entering the off-peak tourist season.

However, new dwellings (up 20.4 per cent) were found to be driving an increase in housing costs, in part due to high levels of building construction activity and ongoing shortages of labour and materials. Also, fuel prices increased 11.8 per cent in the year to October, up from 10.1 per cent in September, affected by the reinstatement of the federal government’s fuel excise. 

How could easing inflation affect you?

High inflation has been a thorn in the side of the Reserve Bank of Australia (RBA), with RBA Governor, Dr Philip Lowe, describing it as “evil” and a “scourge”. Bringing inflation down to a target band of between 2 and 3 per cent has been the driver of the RBA raising the national cash rate from the record low of 0.10 per cent in April 2022 to 2.85 per cent in November 2022. Banks have passed on these rate rises to their home loan customers, reducing buying budgets and property values and increasing mortgage stress.

Inflation peaking and easing could be an indicator that the RBA may choose to pause raising the cash rate and let their previous rate rises take effect on the Australian economy, as some economists have previously predicted. In time, once inflation returns to the target band, the RBA could even choose to cut the cash rate again, which could ease some of the pressure on Australian mortgage holders and home buyers.

Of course, while inflation has eased slightly, 6.9 per cent is still high. While it’s lower than the RBA’s forecast peak of 8 per cent, it’s still more than double the RBA’s target band of 2 to 3 per cent. Also, while supply chain issues may improve, it’s not yet clear whether further rate rises may be required to meaningfully affect the demand side of the inflation equation.

The next RBA meeting is on 6 December 2022. It remains to be seen how these latest inflation figures will affect the RBA Board’s decision regarding the national cash rate.

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