Inflation dips more than economists expect in October

Employee households have seen a rise in living costs higher than retirees and welfare recipients, largely due to rising interest rates. (ABC News: Sharon Gordon)

Inflation was 4.9 per cent over the year to October, according to the monthly Consumer Price Indicator from the Australian Bureau of Statistics (ABS).

Economists had generally expected a result about 5.2 per cent, with consumer prices flat last month.

After a bounce in September to 5.6 per cent, inflation has now continued its downward trend since the more reliable quarterly reading peaked at 7.8 per cent in December last year.

The monthly CPI indicator excluding volatile items and holiday travel rose 5.1 per cent over the year to October, down from 5.5 per cent the month before, while the RBA’s preferred measure of annual trimmed mean inflation was 5.3 per cent in October, down slightly from the rise of 5.4 per cent in September.

However, it remains well above the Reserve Bank’s target for annual consumer price increases of between 2-3 per cent.

The RBA does not expect inflation to return to those levels until late 2025, even after a string of 13 rate rises that has lifted the cash rate target to 4.35 per cent, up from lows of 0.1 per cent as recently as May 2022.

The data show prices for clothing and footwear have now fallen 1.5 per cent over the past year, while the cost of furnishings, household equipment and services has barely budged (+0.4 per cent).

In monthly terms, automotive fuel prices fell 2.9 per cent in October, following a rise of 3.3 per cent in September, but remained 8.6 per cent higher over the past year.

Likewise, holiday travel and accommodation prices fell 7.0 per cent, following a rise of 4.3 per cent in September, and are now only 1.3 per cent higher over the past year.

Government subsidies continue to play a significant role in keeping some price increases much lower than they otherwise would be.

Rents fell 0.4 per cent in October, taking the annual rise down to 6.6 per cent from 7.6 per cent the previous month.

The ABS noted that the fall in rents was due to the remaining impact of increased Commonwealth Rent Assistance.

Excluding the changes to rent assistance, rents would have risen 0.7 per cent over the month of October.

Electricity prices have risen 8.4 per cent since June 2023, noted the ABS, but would have increased 18.8 per cent over this period excluding the Energy Bill Relief Fund rebates.

However, not all government actions lowered prices. Tobacco prices increased 10.4 per cent over the past year, mainly due to the 5 per cent annual tobacco excise indexation and biannual Average Weekly Ordinary Time Earnings increase, which were both applied on 1 September.