Inflation steady at 3.4pc in January

Inflation is at its lowest since November 2021 although the latest monthly consumer data shows cost of living pressures remain intense.

Inflation has been trending in the right direction, but remains too high. Picture: NCA NewsWire / Jeremy Piper

Inflation was steady at 3.4 per cent in the year to January, new monthly consumer prices have revealed, bolstering hopes that the Reserve Bank is done hiking and will be in the position to cut interest rates later in 2024.

Inflation is at its lowest since November 2021, the Australian Bureau of Statistics said, although the details show cost of living pressures remain intense, and economists warned a more complete picture of services inflation would only be available in next month’s release.

Rents, for example, were up 7.4 per cent in the year – steady from the December figure, but only thanks to boosted Commonwealth rent assistance. Grocery price inflation climbed to 4.4 per cent, from 4 per cent, and by substantially more for some supermarket items, such as bread (up 8 per cent in the year), and cheese (up 6.2 per cent).

Insurance and financial services prices were 8.2 per cent up on a year earlier, unchanged from the prior month, the ABS figures showed.

Against that, holiday travel and accommodation prices were 7.1 per cent down on a year earlier.

The direction of travel is clear: inflation is moderating helped by the Albanese Government’s cost-of-living policies.

Jim Chalmers, who is in Brazil attending a G20 meeting of finance ministers, said “inflation is still too high but we are making welcome progress”.

“The direction of travel is clear: inflation is moderating helped by the Albanese Government’s cost-of-living policies. We know it’s not mission accomplished because people are still under the pump,” the Treasurer said.

The ABS reported that energy bill rebates offered by federal and state governments and gas prices have helped keep the lid on power prices.

Electricity prices rose by 0.8 per cent in the 12 months to January, instead of the 15 per cent without the rebates, the ABS said, while gas prices fell by 1.4 per cent as the large movements at the start of 2023 fell out of the equation.

EY senior economist Paula Gadsby said the new consumer price data supported the case for the RBA to hold interest rates unchanged at the end of its next two-day board meeting on March 19, but that it was still too “premature” to be talking about cuts.

Ms Gadsby said the data should be “read with some caution”.

“The first month of the quarter focuses on durable goods prices, such as clothing and household goods, rather than services and domestically driven factors,” she said.

“Talk of rate cuts could be premature as risks persist into 2024, especially if wages growth – the major driver of inflation – fails to ease, and productivity doesn’t pick up to the long-run levels the Reserve Bank is counting on.”

But Capital Economics economist Abhijit Surya said the January figures “suggest that price pressures are likely to abate more rapidly than the RBA is expecting”.

“The weaker-than-expect inflation print for January all but ensures that the RBA won’t hike rates any further, even if it does retain its hawkish bias at its next meeting in March,” Mr Surya said.

“And with price pressures likely to dissipate further in the months ahead, we’re confident that the bank will pivot to an easing cycle in August itself, rather than in November as the analyst consensus is predicting,” he said.

Economists had expected consumer price growth to accelerate to 3.6 per cent.

The monthly consumer price figures provide an only partial snapshot of cost of living pressures. Annual inflation based on quarterly figures dropped from 5.4 per cent in September to 4.1 per cent in December.