Weaker core inflation makes a February rate cut a possibility in Australia

Access the full data insights to learn more about the key points outlined below:

• CPI inflation was weak once again in Q4, with the headline measure increasing by just 0.2% q/q. Inflation has now slowed to 2.4% y/y. The trimmed-mean measure increased by 0.5% q/q in Q4, which is an encouraging step down.

• These data make February’s RBA meeting a live one. Core inflation is at 3.2% y/y and looks to be charting a steady course back to the RBA’s target range – and may already be close enough to prompt a rate cut in February. However, the Bank will be mindful that the economy is still running close its capacity and cost pressures are elevated. Moreover, as the impact of subsidies unwind, headline inflation will pick back up in the coming quarters.

Chart 1: Headline inflation in the RBA’s target range, but core inflation still above