Market News

(Bloomberg) -- A gauge of Australian headline inflation surprisingly held steady in January, suggesting price pressures in the economy are contained and reinforcing the Reserve Bank’s decision to cut interest rates last week.

The Consumer Price Index indicator rose 2.5% versus economists’ estimate of a 2.6% gain, data released by the Australian Bureau of Statistics showed on Wednesday. That was unchanged from the December reading.

The slowdown in January was driven by an easing in rents and new dwelling prices, the ABS said.

The trimmed mean measure, which smooths volatile items, accelerated to 2.8% in January from 2.7% a month earlier.

At both the headline and underlying levels, inflation has eased back from the very high rates reached in the immediate post-pandemic period. Still, some of the recent cooling has been driven by government cost-of-living measures that helped suppress costs.

There have been concerns about the strength and durability of the disinflation impulse. Some central banks, including the Federal Reserve, have highlighted an uptick in price pressures recently, raising fears that disinflation might be stalling. President Donald Trump’s domestic program, including planned tariffs, may also rekindle inflation, some economists say.

In Australia, government spending is set to increase further ahead of an election due by mid-May, with both parties pledging additional funding to woo voters. Recent data have also shown a lift in consumer spending driven by tax cuts and other government subsidies.

All of this casts doubt on the further cooling of consumer prices and explains why Governor Michele Bullock sounded cautious about future easing after the RBA cut the cash rate to 4.1% last week.

Two days after that decision, RBA Deputy Governor Andrew Hauser was asked in a Bloomberg interview if consecutive weak monthly CPI reports would trigger a second rate cut in April. His response: “No single piece of data will ever trigger a cut or move.” The RBA’s No. 2 also highlighted that the monthly data only ever provides a partial account of price moves in the economy.

“We only get a full, 100% read on inflation once a quarter. That causes us to aim off a little bit from the monthly numbers,” Hauser said. “But look, I mean if they come in weak, that will obviously be important for us.”

The RBA targets the midpoint of its 2-3% inflation band.

Wednesday’s report also showed:

• The largest contributors to the annual movement were food and non-alcoholic beverages, up 3.3%, and alcohol and tobacco, 6.4% higher

• Rents rose 5.8% in the 12 months to January, easing from a 6.2% gain, reflecting recent increases in vacancy rates across most major cities

• New dwelling price rises slowed to 2% from a 2.3% gain in the 12 months to December. That was the lowest annual rise since June 2021

--With assistance from Shinjini Datta.