October’s inflation rate held grim news for mortgage holders

Inflation figures have continued their trend down, but not in a way that will help mortgage holders any time soon.

Mortgage holders hopes for a rate cut in February have been all but dashed, as inflation proves to be staying higher for longer.

Australia’s headline inflation rate remained well within the Reserve Bank target range, with official figures from the Australian Bureau of Statistics showing prices rose by 2.1 per cent in the last 12 months.

But the all important trimmed mean, or underlying inflation rate which the RBA monitors, rose to 3.5 per cent for the month of October. In September this measure was at 3.2 per cent.

That is outside the RBA’s target range for inflation of between 2-3 per cent.

The trimmed data removes volatile aspects of the consumer price index basket, including oil and electricity.

Electricity prices were down 35.6 per cent compared to a year ago as government rebates from both the federal and some state governments lowered the cost of power bills.

Transport fuel was also 11.5 per cent as international issues including lower as weaker Chinese demand and easing Middle Eastern tensions sent global oil prices lower.

KPMG chief economist Brendan Rynne said hopes of an early rate cut next year were fading, given trimmed mean inflation rate lifted over the month.

“There are a number of standouts in the data that suggest there is likely to be a stickiness in core inflation,” Mr Rynne said.

“In particular rents inflation remains elevated for the month at an annualised level of 6.7 per cent which, given this component has the highest weighting of all the categories making up the inflation basket, means its influence is likely to be felt strongly for some time to come.”

KPMG also said the quarterly inflation data was more important than the monthly series, where only 66 per cent of price indices are updated.

Annual trimmed mean inflation rose, which is bad news for mortgage holders. Picture: NewsWire / Nikki Short

According to the bank’s minutes of monetary policy released in November, the RBA may need to see more than one ‘good’ quarterly inflation report to consider easing rates from the high of 4.35 per cent they have been for more than a year.

This means mortgage holders, even with a strong quarterly reading in December, rate holders could potentially need to wait until May.

The RBA will announce its rate decision on Tuesday December 10 after its final meeting for the year. It will next meet on February 17 and 18.

The board has said despite inflation drastically declining over the prior year – falling from a peak of 7.8 per cent to 2.8 per cent as of the September quarter of 2024 – underlying inflation remained too high.

RBA staff forecasts are predicting inflation won’t return to a sustainable return to target until 2026.

Michelle Marquardt, ABS head of prices statistics, said some large falls in prices are being offset by other parts of the CPI basket.

“The falls in electricity and fuel had a significant impact on the annual CPI measure this month,” Ms Marquardt said.

“When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding volatile items and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending.”

The top contributors to the annual movement at the group level were food and non-alcoholic beverages which were up 3.3 per cent.

Recreation and culture rose 4.3 per cent, and alcohol and tobacco costing consumers 6.0 per ent more in the 12 months to October.

Treasurer Jim Chalmers was upbeat about Australia’s figures, saying the figures are a third of what the government inherited from the Morrison coalition government.

“Today’s figures show monthly inflation has remained in the Reserve Bank’s target band for three consecutive months for the first time in almost five years,” Mr Chalmers said.

“While we welcome the progress we’ve made in today’s figures, we recognise that doesn’t immediately translate to how people are faring and feeling in the economy.

“That’s why the primary focus of the Albanese government is to roll out responsible cost-of-living relief which today’s data shows has directly taken the edge off price pressures in our economy.”

Inflation has fallen to a three-year low. Picture: NewsWire / David Crosling

Shadow treasurer Angus Taylor pointed to Australia’s trimmed mean inflation rate.

“Australia’s core inflation is higher than every other major advanced economy,” he said.

“This year, every other major advanced economy has seen greater declines in core inflation.

“Rate cuts are happening overseas while there are none in sight for Australians.”

A poll from Reuters published before the data was released had predicted the indicator would rise 2.3 per cent in the 12 months to October, up from 2.1 per cent in September.

CBA Senior Economist Stephen Wu was slightly more bullish on his prediction saying the big four banks expected the monthly indicator to record annual headline inflation of 2.1 per cent in October, near the bottom of the RBA’s target range.

The economist predicted this would be headlined by a fall in rents, electricity and hotel travel.

Originally published as October’s inflation rate held grim news for mortgage holders