October Inflation Shows Early Signs Heading In Right Direction

AUSTRALIA: October Inflation Lower, Underlying Stable, Early Signs Heading In Right Direction

Headline CPI inflation for October fell to 6.9% y/y from 7.3% in September, which was not only lower than expected but also below the lower end of forecasts. But the ABS notes that with the previous weights it would have been 7.1%. The Trimmed mean was steady at 5.3% y/y. The CPI only rose a seasonally-adjusted 0.2% m/m and the trimmed mean 0.3%.

• Despite the new monthly inflation data coming in well below expectations, it is still elevated. The RBA has said that it will continue to focus on the quarterly data for now, given that the monthly series has a limited history and a narrower basket. The stabilisation of underlying inflation in October though should be seen by the RBA as an early sign that prices might be moving in the right direction.
• The biggest contributors to the rise were new dwellings (+20.4% y/y) and automotive fuel (+11.8% as cut to excise expired).
• The easing in headline inflation was driven by some large moves in a number of categories. Fruit & vegetables inflation dropped to +9.4% y/y from 17.4% last month, as supply increased. Holiday-related inflation also moderated to 3.7% y/y from 12.6% and the weight of international travel increased to 1.9% from 0.1% in the weighting revisions.
• The ABS noted that "Typically, annual updates to the weights have limited impact on the overall CPI. This year, however, the significant changes in spending patterns over 2021 and 2022 meant that the reweight had a larger impact on the CPI than usual."
• See press release here.

Source: MNI - Market News/ABS