Inflationary pulse dies
Inflation was softer than market expectations in the December 2024 quarter, at just 0.2 per cent, taking annual inflation down to a 4-year low of 2.4 per cent.
A fair chunk of that weakness was down to government subsidies, of course, for transport fares, energy, and rental assistance.
The quarterly core or 'trimmed mean' inflation figure was also lower than market expectations at 0.51 per cent.
Looking at the 6-month annualised figure for core inflation, it's clear than the inflationary pulse has died, and markets are now pricing for an interest rate cut an February as about 90 per cent likely.
The weighted median core inflation figure - mathematically speaking less impacted by government subsidies - also came in soft, at just 0.53 per cent.
Incidentally, the ABS also runs a monthly inflation gauge, which saw the annual reading for trimmed mean inflation drop from 3.2 per cent to 2.7 per cent in December.
Tradables inflation has levelled off, and may even rebound a little in 2025 given the lower Aussie dollar, but domestically non-tradables inflation is dropping quite quickly.
The residual inflation was seen in insurance, airfares, holiday accommodation, and with the largest contribution coming from alcohol and tobacco (albeit so many ciggies are sold on the black market these days, one wonders how relevant the sin taxes on tobacco really are).
Although consumer price pressures have been undoubtedly painful since the pandemic lockdowns, it's worth noting that this did come off the back of six years where the opposite was true, and the economy was often seen to be running with an output gap.
Finally, the Reserve Bank should get a bit of a free kick from lower rental price inflation in 2025.
SQM Research's asking rents index has levelled off, but this will take some time to flow through to the official ABS inflation data for actual rents paid by consumers.
There have been some brutal increases in Perth rents of late, but equally rents in Perth did fall for a period of several years before the pandemic.
The wrap
Overall, there was softer than expected inflation in Q4, of just 0.2 per cent, following on from a similarly weak figure of 0.2 per cent in the preceding September 2024 quarter.
This time around the core inflation figures were softer as well, giving the Reserve Bank plenty of scope for easing interest rates as 2025 progresses as a risk management tool.
Australia's 1-year government bond yield fell by 6 basis points on the softer than expected figures, from 3.92 per cent to 3.86 per cent.
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