Monthly CPI unchanged for third consecutive month

The Monthly Consumer Price Index (CPI) indicator for February has shown a rise of 3.4 per cent in the 12 months, the Australian Bureau of Statistics (ABS) has confirmed.

This represents the third consecutive month where the monthly CPI has remained unchanged at 3.4 per cent, according to ABS head of prices statistics Michelle Marquardt.

The largest contributors to the February annual CPI increase were housing (4.6 per cent), food and non-alcoholic beverages (3.6 per cent), alcohol and tobacco (6.1 per cent), and insurance and financial services (8.4 per cent).

“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation,” Marquardt said.

“When excluding these volatile items from the monthly CPI indicator, the annual rise to February was 3.9 per cent, down from 4.1 per cent to January. Annual inflation excluding volatile items has continued to slow over the last 14 months from a high of 7.2 per cent in December 2022.”

Housing inflation remained unchanged from January, while new dwelling prices rose 4.9 per cent over the year as builders passed through higher costs for labour and materials, the ABS stated.

Reacting to the data, CreditorWatch chief economist Anneke Thompson said the Reserve Bank of Australia (RBA) will “no doubt like to see this monthly inflation figure falling at a faster pace”.

“…[T]he good news for borrowers is that the biggest drivers of inflation currently – rents and insurance – are not sensitive to movements in the cash rate,” Thompson continued.

“In fact, any decrease to the cash rate is more likely to have a dampening impact on rental inflation, as there is a strong correlation between rising home loan interest rates and rising rents.

“That being said, today’s figure doesn’t change the outlook for future cash rate cuts, with the first cut still likely towards the end of 3Q24 or even early 4Q24.”

ANZ’s economics team (economist Madeline Dunk and senior economist Catherine Birch) said that the RBA will “take comfort” in the current inflation trajectory, with inflation on track to “undershoot their 1Q forecast of around 0.8 per cent quarter on quarter”.

“But there are some signs that we may encounter the ‘last mile’ challenge,” they added.

Similarly, Commonwealth Bank of Australia (CBA) economist Stephen Wu said the RBA “will be welcomed” by the central bank.

“Today’s [27 March] print looks lower than the RBA had forecast as recently as last month. And the downside miss for us means we will revisit our 1Q24 CPI forecast to incorporate today’s data,” Wu said.

Wu added that the inflation data “carries less weight and immediate implications for monetary policy” due to the RBA’s new meeting schedule.

“The 1Q24 CPI, which is the benchmark measure of consumer price inflation, is due before the next RBA board decision [6–7 May]. The RBA board will have access to a refreshed set of staff economic forecasts that will incorporate the 1Q24 inflation data,” Wu said.

RBA governor Michele Bullock revealed following the March monetary policy meeting that tackling inflation continues to be a primary challenge for the board as the path towards potential rate cuts still remains unclear.

Despite this, Bullock clarified that the RBA is confident that inflation will return back to the target range of 2–3 per cent within its forecast period.

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