Inflation at 2.1% for October but no rates cut likely

The Consumer Price Index annualised monthly inflation figure came in at 2.1% for October, in line with the September reading.

The figure continues to reflect government energy subsidies, which drove a 35.6% fall in electricity prices over the 12 months to October.

Meanwhile, the monthly trimmed mean number for October, a measure of underlying inflation, came in higher at 3.5% – up from September's read of 3.2%.

The figure doesn't include the falls seen in volatile energy and fuel prices and was slightly higher than analysts expected, driven largely by base inflation measures. 

However, the numbers are likely to have little effect on markets as the October data doesn't represent the full basket of goods and services measured for quarterly CPI figures and is generally considered 'goods heavy'.

This means it doesn't account for the full effect of services inflation, which is largely responsible for fuelling inflation in Australia.

The Reserve Bank of Australia (RBA) also won't be too invested in the October CPI numbers, preferring to wait for the next quarterly inflation data – due in January – in its deliberations on the cash rate.

Inflation remains an issue

Quarterly CPI data released last month showed annual headline inflation had dropped to 2.8% in the 12 months to September, landing within the RBA's 2-3% target range.

However, the RBA's preferred measure – trimmed mean inflation – came in at 3.5%, a drop on the June quarter's 3.9% but still well outside the target band.

NAB economists say the October data continues to reflect government electricity and rent subsidies, plus a statistical correction to childcare subsidies, all of which were widely expected to keep the monthly headline inflation reading relatively low.

Holiday prices also saw a seasonal fall in October, also contributing to the modest monthly headline number. 

New issues could delay RBA rate cuts

Since the RBA's last board meeting in early November, the United States voted to return former President Donald Trump to the White House.

His plans to reintroduce trade tariffs has already sent many markets into a spin, with RBA governor Michele Bullock acknowledging a trade war between the US and China could change Australia's economic landscape.

Economists and analysts have painted different scenarios for Australia depending on the extent of the President-elect's policies. 

The uncertainty will likely introduce an additional 'wait and see' factor in RBA decision-making into 2025.

The central bank board is due to meet for the final time in 2024 on 9-10 December.

It's almost universally expected the cash rate will remain at 4.35% following the meeting, with many analysts pushing back predictions of when an interest rate cut will happen.

Both NAB and Westpac economists are now tipping May 2025 to bring the first cash rate cut in more than four years, while CommBank and ANZ are maintaining their February forecasts.

It's not good news for borrowers holding out for an easing in interest rates.

The RBA has repeatedly said it will continue to monitor the data, with bringing underlying inflation "back within its target band" remaining the board's main priority.

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