Inflation rose in November, but trimmed mean continues to fall

What drove inflation in November?

According to the ABS, alcohol and tobacco were the largest contributors to the annual movement (+6.7 per cent), followed by recreation and culture (+3.2 per cent).

Food and non-alcoholic beverages (+2.9 per cent) came in third, after fruit and vegetable prices increased 6.0 per cent over the month (however the ABS said that recent price declines were seen in several produce items due to favourable growing conditions).

The monthly CPI stats also showed that rents increased by 6.6 per cent in the 12 months to November, as tight rental markets continue to plague the country. New dwelling price growth slowed to 2.8 per cent, the lowest since July 2021, driven by builder discounts.

ANZ economist Catherine Birch noted that the "unusual monthly fall in new dwelling construction costs" was the largest fall since the impacts of the HomeBuilder scheme.

"This will have a material impact on Q4 trimmed mean inflation, given that this expenditure class accounts for around 8 per cent of the CPI basket," she noted in an ANZ Research update.

Partly offsetting the rise in the CPI were annual falls for electricity (-21.5 per cent) and automotive fuel (-10.2 per cent).

Rebates skewing underlying inflation

Overall, the measures of underlying inflation (for example, by excluding volatile items) also showed that inflation rose in November, but the ABS emphasised that government rebates continue to skew the data.

The CPI excluding volatile items and holiday travel rose 2.8 per cent in the 12 months to November, for example (compared to a 2.4 per cent rise in the 12 months to October), but the increase was primarily due to changes in electricity prices.

The annual fall in electricity prices softened due to a 22.4 per cent rise in November, following four consecutive monthly falls, according to the ABS.

This was due to the return to a single monthly instalment of the 2024–25 Commonwealth Energy Bill Relief Fund (EBRF) rebate for households in South Australia, Tasmania, Northern Territory, the ACT, and for most households in NSW and Victoria.

Commenting on the statistics, Michelle Marquardt, ABS head of prices statistics, said: “Annual CPI inflation has risen since last month, in part due to the timing of electricity rebates. In some states and territories, households received two rebate payments in October in lieu of not receiving a payment in July.

“From November most households received one payment. As a result, electricity prices fell 21.5 per cent in the 12 months to November, compared to a fall of 35.6 per cent to October.”

When excluding all Commonwealth and state government rebates, electricity would have fallen 1.7 per cent in the 12 months to November.

Annual trimmed mean outside RBA target band

The annual trimmed mean of inflation – one of the figures the Reserve Bank of Australia (RBA) is most interested in when setting the official cash rate – fell to 3.2 per cent in November 2024, down from 3.5 per cent in October.

This figure is outside the RBA’s target inflation band of 2–3 per cent.

Noting the fall in annual trimmed mean inflation, Marquardt said that the statistic is higher than the monthly CPI inflation as it removes large price falls for electricity and automotive fuel.

How will the RBA react?

While the monthly CPI figures only include some of the full CPI basket data (for example, monthly price data is only available for 48 per cent of the CPI basket), they provide a good indicator of what the quarterly CPI data may look like.

The quarterly inflation figures are a key consideration used by the Reserve Bank of Australia’s monetary policy board when it meets to determine the official cash rate. The last quarterly figures released (for the September quarter) showed that inflation rose to its lowest annual inflation rate since the March 2021 quarter.

The deputy chief economist of financial services group AMP, Diana Mousina, said the November figures "showed a slightly better profile for the December quarter trimmed mean inflation figures (which come out at the end of month) and are key prior to the RBA meeting in February".

"There has been some good progress in slowing services prices, especially for insurance, travel and, takeaway and restaurant meals. While rents are still elevated, they look to have peaked," she said, adding that there are now more items with inflation running below 2 per cent than there are items running above 3 per cent. Indeed, the number of items running above 3 per cent has fallen to 38 per cent, Mousina noted, while the number of items that have inflation running below 2 per cent has lifted to 44 per cent.

AMP's forecast for the December quarter inflation figures is for headline inflation at 0.3 per cent (or 2.5 per cent year on year) and 0.6 per cent or 3.3 per cent for the trimmed mean.

"If the December quarter inflation data comes in close to our forecasts then a February 0.25 per cent rate cut is likely (taking the cash rate from 4.35 per cent to 4.1 per cent)," Mousina continued.

"We expect the RBA to cut interest rates by a total of 0.75 per cent this year."

What does the RBA think?

Speaking in December, RBA governor Michele Bullock said that while federal and state cost-of-living relief was expected to pull down headline inflation, the RBA does not see inflation “returning sustainably” to target until 2026.

Bullock said: “In year-ended terms, underlying inflation has been above the mid-point of the target for 11 consecutive quarters and has fallen very little over the past year.

“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The most recent projections in the August SMP show that it will be some time yet before inflation is sustainably in the target range.

“Data since then have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.

“Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.”

The RBA’s monetary policy board will next meet to determine the cash rate on 17–18 February.

[Related: RBA leaves rates on hold but hints at future cuts]