Early Sign That Inflation Has Peaked, 38% Of Index Unchanged

January CPI came in significantly lower than expected at 7.4% y/y compared with the projected 8.1% and December’s 8.4%. This is still a new series and the RBA continues to put more weight on the quarterly series. The first month of the quarter has updates for 62% of the basket and the rest is carried forward. The RBA are likely to be cautiously optimistic that this signals a Q4 peak in inflation but more data is needed and inflation remains elevated. Q1 CPI is published on April 26 and February’s on March 29.

• In the first month of Q4 2022, annual inflation fell 0.5pp and then rebounded 0.8pp the next month. Therefore, we could see some recovery from 7.4% in February. The January data didn’t contain updates on utilities (which have been rising), medical services, child care, autos or restaurant meals.
• Headline CPI fell 0.1% m/m seasonally adjusted. The trimmed mean series continues to be suspended. The CPI ex volatile items eased to 7.2% from 8.1% the previous month.
• The main contributors to the rise in inflation were housing and food. Recreation prices fell sharply on the month after rising strongly in December. The ABS notes that this component tends to be volatile. CPI ex holiday travel also eased though to 6.7% y/y from 7.4% in December.