January Monthly CPI Indicator
Electricity bounces as rebates fade but dwelling prices surprise with a further fall. All up this presents a modest upside risk to our Q1 CPI estimate (0.5%) as well as our Trimmed Mean estimate (also 0.5%).
The Monthly CPI Indicator gained 2.5% in the year to January, splitting Westpac’s estimate of 2.4% and the market median of 2.6%. There was also a wide range of estimates this month, from a high of 2.9% to a low of 2.1%.
In the month, the CPI Indicator fell –0.2% compared to Westpac’s published monthly near-cast of –0.4%.
The Trimmed Mean estimate for January was 2.8%yr, a very modest lift from 2.7%yr in December. Westpac’s estimate for the Trimmed Mean at June 2025 is 2.4%yr but we see some modest upside risk to that estimate based on the January data.
Excluding volatile items & holiday travel, the Monthly CPI came in at 2.9%yr compared to 2.7%yr in December. Over the past two months, the monthly core measures of inflation have all been running below 3%yr, marking an improvement from the months prior to that, where some measures were a bit above, while others were a bit lower. If dwelling costs continue to moderate, as we expect, then core inflation can continue to drift lower.
Westpac estimates that market services ex volatile items are still running at a sound 3.7%yr pace, but this is down from 3.8%yr in December and 5.4%yr just back in October 2024. Core market services ex volatile (we exclude holiday travel) is down to 2.7%yr and it has been holding this pace since September 2024.
Electricity prices lifted in January as some households in Queensland experienced increases in their electricity bills having used up the $1,000 State government rebate. In January, electricity lifted 8.9% despite households in all States and Territories, except WA, receiving their third instalment of the Commonwealth Energy Bill Relief Fund rebate in January. This demonstrates the magnitude of the impact the Qld $1,000 rebate has had on the recent CPI prints.
This was a bigger jump in electricity prices than we had expected for January. This sets a higher base for electricity prices, and as such, we have had to revise up our estimate for electricity prices for the March quarter CPI.
We were surprised by a further modest fall in dwelling prices, down –0.1% in the month while we had expected a 0.1% increase. This presents a modest downside risk to our December quarter CPI near-cast for dwelling prices.
This month we also have some key updates on prices that are only surveyed once a quarter, which flow directly into our March quarterly estimate. In January we had updates on:
- Garments for children: –3.2%,
- Footwear for men: –4.5%,
- Footwear for women: –4.1%
- Footwear for children: –0.4%,
- Clothing accessories: 1.4%,
- Cleaning, repair & hire of clothing: 0.5%,
- Maintenance & repair of dwellings: 0.5%,
- Furniture: –5.5%,
- Carpets & other floor coverings: –0.3%,
- Major household appliances: –2.3%,
- Small electrical appliances: –2.2%,
- Glassware, tableware & household utensils: –3.8%, and
- Tools & equipment for house and garden: 0.1%.
Taken at face value, given the large number of price declines in the published quarterly estimates for the items above, you might think that the January Monthly CPI is pointing towards something that is broadly around trend. However, the quarterly CPI is not a simple average of the Monthly CPI Indicator. History has taught us that a simple ‘face value’ estimate can be misleading. In addition, some of the extra strength in the basket is in quite volatile items, particularly from food prices, which can quickly revert more than we have in our current monthly profile.
Because of this, and given Westpac has a quite soft March quarter estimate for the CPI (0.5%qtr/2.0%yr) and the Trimmed Mean (0.5%qtr/2.7%yr), we would suggest that that the January update is pointing to a modest upside risk to both our estimates. However, this is only a modest upside risk, and we would still expect both to print below the RBA’s June 2025 estimate of 2.4%yr for the CPI and 2.7%yr for the Trimmed Mean.
In more detail, items that were stronger than forecast were:
- Food (0.8% vs. 0.3% forecast).
- Alcohol & tobacco (0.8% vs. 0.2% forecast).
- Housing (0.9% vs. –0.3% forecast), as we thought the ongoing electricity rebates across most states would have outweighed the increase in Qld energy bills.
Items that were softer than expected were:
- Transport (–0.5% vs. 0.1% forecast), driven by a fall in fuel prices.
- Communications (–0.4% vs. 0.1% forecast).
- Recreation (–3.2% vs. –2.0% forecast), due to a –5.9% fall in holiday travel.
Meanwhile, household contents & services was close to expectations (–1.4% vs. –1.2% forecast), alongside clothing & footwear (1.7% vs. 1.8% forecast).
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