Headline Surprises Lower, Core Remains Sticky

October headline CPI inflation came in lower than expected at 4.9% y/y after 5.6%. Subsidies for electricity and rent have helped to bring inflation down as well as lower fuel prices. The moderation in the trimmed mean was a lot less sanguine with it moving to 5.3% from 5.4%. It is worth noting that the first month of the quarter doesn’t include updated prices for most services and given this sector is showing sticky inflation, the October data is likely underestimating current inflation.

• Given the role of subsidies and lack of updated services prices, it is difficult to gauge the extent of demand-driven inflation from the October CPI release that RBA Governor Bullock spoke about in HK yesterday. Also the RBA has stated that it is concerned about sticky underlying inflation and the trimmed mean only eased 0.1pp.
• Excluding volatile items and travel inflation eased to 5.1% from 5.5%. Non-tradeables fell to 6% from 6.2% y/y but most of the downward pressure was in tradeables as it came down to 2.5% from 4.2%. Services were 5% y/y from 5.3% while goods prices rose 4.6% after 5.7%.