September Quarter CPI
In line with expectations with only small variations plus revisions to seasonality . Headline CPI 0.2%qtr/2.8%yr; Trimmed Mean 0.8%qtr/3.5%yr; Weighted Median 0.9%qtr/3.8%yr.
- Variations were where we expected the risks to be, with a slightly softer CPI but the Trimmed Mean rounding up.
- The CPI gained 0.2% in the September quarter, as per the market median and where we thought the risk to our 0.3% near-cast lay. This saw the annual rate fall back within the RBA’s target band, reporting a 2.8%yr pace. This is the first time headline inflation has been inside the RBA’s target band since March 2021 (1.1%yr).
- As noted by our Chief Economist, Luci Ellis, with the September quarter CPI data confirming that the disinflation remains on track and supply-side concerns easing, rate cuts from February still seem the most likely path for the RBA.
- In addition, the momentum in inflation – as measured by the six-month annualised pace (seasonally adjusted) – was just 2.2%yr, suggesting that on the current trend the annual pace will soon be at the bottom of the RBA’s target band.
- Compared to our forecast, the components of the CPI came in as broadly as expected. There was an unexpected 0.4% increase in education, and holiday travel was a touch stronger, but combined these were just a 0.04ppt error.
- It is true that the modest rise in the CPI was due to the cost-of-living rebates (electricity fell –17.3%/–0.41ppt contribution) and falling auto fuel prices (–6.7%qtr/–0.25ppt contribution) which is why the RBA has said it will look at the core measures of inflation which trim out these extreme price moves.
- To give you some magnitude of the variation in the rebates by capital cities, electricity prices fell –93% in Brisbane (the Qld state government provided an additional $1,000 lump sum on top of the Commonwealth rebate), –56% in Perth but only by –5% in Melbourne and –2% in Sydney.
- The Trimmed Mean printed 0.8% in the quarter; at two decimal places it was 0.78% so we did see the upside rounding risk we highlighted in our preview. This saw the annual pace ease back to 3.5%yr from 4.0%yr, and the six-month annualised pace ease to 3.3%yr from 3.8%yr. The Trimmed Mean estimate for the June quarter was revised up from 0.8% to 0.9%. Note that this is due to seasonal reanalysis and at two decimal places, the revision was a mere 0.03ppt adjustment (from 0.84% to 0.87%), so it should not be thought of as significant.
- The RBA was forecasting CPI inflation to be 3.0%yr by December, so headline inflation is already running much better than what they expected and unless they expect to see a significant jump up in inflation in the December quarter (around 0.8%qtr), they are likely to revise this forecast in the November Statement on Monetary Policy. Our current CPI forecast for end 2024 is 2.6%yr.
- For core inflation, the RBA was also forecasting the Trimmed Mean to be at 3.5%yr for end 2024. We are already down to that pace in the September quarter, and the six month annualised pace of 3.3%yr suggests we are on track to see a better outcome than that. Our current Trimmed Mean forecast for end 2024 is currently 3.3%yr.
- The Monthly Indicator for the final month of the quarter is often overshadowed by its older sibling, the Quarterly CPI. However, it is worth noting that Monthly CPI Indicator rose just 0.1%mth/2.1%yr in September, a touch softer than our 0.2%mth/2.2%yr forecast. Nevertheless, the Monthly Indicator does suggest that the momentum in prices is continuing to moderate, setting us up for a soft Q4.
Inflationary pressures remain centred on services (1.1%qtr/4.6%yr) and even more so for market services ex volatile (1.3%qtr/4.1%yr). This measure peaked at 6.8%yr in June 2023. Falling fuel and electricity prices led to a decline in goods prices (–0.6%/1.4%yr).
Thinking about consumer demand and where it might be driving inflation, discretionary goods & services (ex-tobacco) rose 0.7% in the quarter holding the annual flat at 2.1%yr, the slowest pace since December 2021. Non-discretionary prices are where we have been finding inflationary pressures lurking but due to the cost-of-living assistance, prices here fell –0.1% in the September quarter taking the annual pace down to 2.9%yr, the slowest pace since March 2021 (–0.4%yr). However, before we get too excited, we should note this follows a run of solid prints. The six-month annualised pace is still 4.7%yr at this stage, and as we are expecting to see cost-of-living assistance to come to an end, we should see a jump up in non-discretionary prices as we move into, and through, the first half of 2025.
A further sign that demand-driven inflation is moderating is found in non-tradable goods and services, which lifted 0.5% in the quarter. As illustrated in the chart below, the pace of increase in market services inflation has eased, pointing to both firms believing they have less of an ability to adjust prices along with signs of that wage growth is already softening. This is in addition to the moderation in inflation in housing (though this is mostly due to the cost-of-living assistance, and administrative prices).
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