The latest Australian inflation report has put to rest many doubts regarding next month’s anticipated rates pause by the Reserve Bank, revealing a decrease in inflation figures.
On Wednesday, the Australian Bureau of Statistics (ABS) released its monthly consumer price index (CPI) indicator, which showed annual inflation was up 6.8 per cent over the year to February — down from 7.4 per cent in January and a top of 8.4 per cent in December.
“This marks the second consecutive month of lower annual inflation, also known as ‘disinflation’, from the peak of 8.4 per cent in December 2022,” ABS Head of Price Statistics Michelle Marquardt said.
The CPI revealed the main contributors to the annual increase in February were housing, up 9.9 per cent, food and non-alcoholic beverages, up 8 per cent, transport, up 5.6 per cent and recreation and culture, rising 6.4 per cent.
“New dwellings grew 13 per cent in the 12 months to February, which is the lowest annual growth since February 2022 as price rises for building materials continue to ease,” Ms Marquardt added.
“Rent prices rose again due to the tight rental market, maintaining the 4.8 per cent annual growth recorded in January.”
The ABS highlighted that eased price rises among these categories compared to the previous month were the main contributors to the disinflation. Seasonal holidaying and building materials were examples of the eased prices.
The latest figures from the ABS have led analysts to believe that a rates pause next month is now increasingly likely.
Rates pause a real possibility
City Index Senior Analyst Matt Simpson said Wednesday’s inflation report was a reaffirmation of the need for a rates pause.
“Given the RBA’s dovish hike, comments of a pause from Governor Lowe and the discussion of it within the March minutes, the RBA have all the reasons they need to chill out, hold rates steady and assess incoming data,” he said.
“Furthermore, members have faced political heat and unfavourable headlines, and it should be remembered that central bankers are still humans who can react or make decisions emotionally.”
Mr Simpson added that the RBA could always hike again in May if the “quarterly read blows out at an uncomfortable rate”.
The Reserve Bank board will meet to make its next rates decision on April 4.
Frollo Chief Customer Officer Simon Docherty said the drop in inflation was a “strong and positive sign” that the RBA’s measures were taking effect.
“This is welcome news for Australian consumers, who have been struggling with the rising cost of living over the past year,” he said.
“However, policymakers must balance the need to slow down the economy with the potential impact on consumers and small businesses. It’s important to ensure that the economic slowdown doesn’t have a severe knock-on effect on everyday Australians.”
Small businesses have been struggling with the 10 consecutive interest rate hikes and the rising costs of living, left with no choice but to increase their prices for customers.
A rates pause may provide some relief for small businesses that have been struggling, which could in turn be welcomed news to their customers.