The ABS' consumer price index (CPI) showed prices rose 0.2% over the December quarter and 2.4% through 2024.
Trimmed mean inflation, the measure that excludes volatile goods like fuel which the RBA tends to focus on, was 0.5% through the quarter and 3.2% annually.
That annual underlying inflation number is most eye catching, given it comes in below the 3.4% that the RBA had forecast in the November Statement on Monetary Policy (SOMP).
The 0.2% quarterly increase, along with the equivalent increase in Q3, is the lowest quarterly increase since June 2020 when the CPI dropped at the height of the pandemic.
Food and (non alcoholic) beverage prices rose just 0.2% from October to December, down from 0.6% in the September quarter.
With housing prices stagnant at the end of 2024, housing costs dropped 0.7% through the quarter, with furnishings, household equipment and services also seeing prices decline 0.2%.
Transport costs dropped 0.7% through the quarter - over the year fuel became 7.9% cheaper with global oil prices moderating further after the major increases of the recent past.
On the whole, the outlook for inflation looks promising, but there are still several spending categories that continue to see big price increases.
The cost of alcohol and tobacco went up 2.4% over the final three months of 2024, mostly driven by the annual 5% increase to the tobacco excise that will continue until 2026.
Recreation and culture also rose 1.5% over the quarter - to be expected as airfares and accommodation prices tend to increase over the holiday period.
Will the RBA now cut?
While moderating prices will be welcomed by many, for plenty of mortgage holders the real question is whether these latest inflation figures will be compelling enough for the RBA to finally cut the cash rate.
For many, underlying inflation coming in below the RBA's forecasts is a further indicator that the RBA may cut at the 18 February monetary policy meeting.
As of 28 January, the ASX RBA rate tracker (estimating the chances of rate movements based on options trading) put the chance of a 25 bps rate cut to 4.10% in February at 84%.
Rate cuts by April are fully priced in, and these latest inflation figures are likely to fuel further optimism in financial markets that the RBA are close to pulling the trigger.
NAB economist Taylor Nugent, who correctly predicted all of the major quarterly inflation numbers, says the February decision is live, but maintains that the likeliest start date for cuts is May.
"There is no urgency to cut and there is option value in waiting to better assess the trajectory of the labour market and the extent of the pick up in growth," he said on Wednesday morning.
WeBull Securities Australia CEO Rob Talevski is another expert who isn't optimistic about February, telling Savings.com.au on Tuesday he didn't think there would be cuts until May.
"You've got a lot of people employed, they're spending and that can keep [inflationary] pressure up," he told the Savings Tip Jar podcast.
The same SOMP forecast unemployment to rise to 4.3% by the end of last year - per the ABS the unemployment rate remains at 4% as of December.
Picture by nrd on Unsplash
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