Australia monthly inflation steady in October, core ticks higher

SYDNEY (Reuters) – Australia’s consumer price inflation rate stayed at a three-year low in October as government rebates drove electricity and rent prices down, though core inflation picked up in a sign of lingering cost pressure elsewhere.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index rose at an annual pace of 2.1% in October, unchanged from September and below market forecasts of 2.3%.

From the month earlier, it fell 0.3%.

The trimmed mean – a closely watched measure of core inflation – rose to an annual 3.5% from 3.2% in September, taking it further above the Reserve Bank of Australia’s 2% to 3% target band and making it a hurdle to cuts in interest rates.

The report for October – the first month of the quarter – does not contain price updates on a range of services that are more of concern to the central bank, thus it is likely to have limited bearing on monetary policy. The bank has said monthly reports tend to be volatile.

Markets have not fully priced in a cut in rates until May next year, with a move in December at just a 14% probability.

The Australian dollar was little changed at $0.6474 after the data, while three-year bond futures held earlier gains, up two ticks at 96.02.

The central bank has kept interest rates steady for a year now, judging that the cash rate of 4.35% – up from a record-low 0.1% during the pandemic – is restrictive enough to bring inflation to its target band while preserving employment gains.

The RBA has said it would need to observe more than one good quarterly inflation outcome – a reason why markets are only pricing in a 27% chance of a cut in February after the release of the fourth-quarter CPI report.

Again, electricity subsidies from the federal and state governments lowered prices by 12% in the month, while rents also fell 0.3% from September thanks to government relief.

When volatile items and holiday travel were excluded, the annual CPI fell to 2.7% from September’s 3.0%.