Inflation falls to the lowest level in almost two years

The latest official data shows inflation slowed from 4.9 per cent over the year to October to 4.3 per cent over the year to November.

The Australian Bureau of Statistics (ABS) says this is the slowest annual rate of price rises since January 2022.

Economists were generally expecting the Consumer Price Indicator to show price rises of 4.4 per cent over the year to November, so the data will likely add further weight to sentiment that the Reserve Bank has finished raising interest rates.

The decline in inflation was more modest when the most volatile prices, such as fuel, fruit and vegetables, and holiday travel were excluded, dropping from 5.1 per cent in October to an annual rise of 4.8 per cent in November.

The ‘trimmed mean’, which does a similar exercise of stripping out volatile price moves and is the RBA’s preferred measure, fell from 5.3 to 4.6 per cent.

“Before the release, the rates market assigned a 100 per cent chance of an RBA rate cut in August before another 25-basis-point rate cut by December,” observed IG market analyst Tony Sycamore.

“Today’s fall in the trimmed mean and the core measure, below 5 per cent, confirms that the disinflation narrative remains firmly in place and expectations of RBA rate cuts in 2024.

“If fourth quarter inflation data scheduled for release at the end of the month paints a similar picture, there is a good chance that expectations of the RBA’s first rate cut are brought forward to June, with a third rate cut added into the rates market for 2024.”

But many local economists think traders are too optimistic about the speed with which central banks will move to cut rates.

“We don’t see any cuts until at least late 2024,” ANZ senior economist Catherine Birch told ABC News Channel.

“We have seen in past cycles, inflation come down but then pick up again if rates are eased too quickly or are not high enough.

“We think at the moment we are the right spot.”

Essentials continue to dominate price rises

The most significant contributors to the overall rising cost of living in the year to November remained housing (+6.6 per cent), food and non-alcoholic beverages (+4.6 per cent), insurance and financial services (which does not include interest rates, +8.8 per cent), and alcohol and tobacco (+6.4 per cent, mainly driven by surging tobacco prices).

Insurance was a key driver of rising financial services costs, with premiums up 16.3 per cent over the year to November, which the ABS said was due to higher reinsurance and natural disaster costs, and which insurers also attribute to the surging cost of car repairs.

Yet again, price rises for some of these essentials were much lower than they would have been without government subsidies.

While rents surged 7.1 per cent over the year to November, ABS head of price statistics Michelle Marquardt said the increase was far steeper for those who do not receive Commonwealth Rent Assistance, which increased in September.

“Excluding these changes to rent assistance, rents would have increased 8.8 per cent over the year to November 2023,” she noted.

“Electricity prices have risen 8.8 per cent since June 2023. Excluding the rebates, electricity prices would have increased 19.0 per cent over this period.”


‘The fight against inflation is not over yet’

A close up of Jim speaking in a suit and orange tie outside a building during the day.
Federal Treasurer Jim Chalmers told reporters that the government is trying to tackle inflation from “every angle”. (AAP: Jono Searle)

“We are making progress in this fight against inflation, but the fight against inflation is not over yet,” Treasurer Jim Chalmers told reporters at a press conference in Cairns.

Although Shadow Treasurer Angus Taylor said that progress was not fast enough.

Taylor gestures to out of focus journalists and camera operators in the foreground.
Shadow Treasurer Angus Taylor said the government should be doing more on industrial relations and competition policy to lower inflation. (ABC News: Matt Roberts)

“We continue to see prices rising sharply for so many essential items that Australians buy – whether it’s housing, bread, dairy, gas, electricity – you name it, Australians are continuing to pay more for almost everything,” he told ABC News Channel.

“That is on top of sharp increases in interest rates and a very sharp increase in taxes paid over the last year or so.

“Those three things combined mean that we’ve had the sharpest fall in [real household disposable] income in any advanced country in the world.”

Supermarket prices under scrutiny

The government on Wednesday revealed the pre-Christmas appointment of former Labor minister Craig Emerson as the head of a review into the Food and Grocery Code of Conduct.

Dr Chalmers said it was another way for the government to try to address the cost-of-living challenges facing Australians.

“We are coming at this inflation challenge from every angle, part of that is making sure that we can get a fair ago for families and farmers,” he said.

“People are under pressure, we want to make sure that the groceries market is operating as intended, this is all about strengthening the food and grocery codes if we can do that.”

The latest ABS data shows that, within the food category, bread and cereals continued to record the steepest price rise over the past year.

But the major supermarkets have defended their grocery pricing, arguing their profit margins remain relatively low and unchanged.

“Our costs have increased due to inflation – construction costs, energy prices, logistics, packaging and other costs have all risen,” a Coles spokesperson explained in a written response to questions from the ABC.

“Many suppliers are increasing their prices because they too are dealing with inflationary pressures to produce the products we sell in our supermarkets. All of these factors affect the price customers see at the check-out.

“For the July-September quarter, price inflation in Coles’ supermarkets declined to 3.1 per cent, down from 5.8 per cent the previous quarter.

“Fresh food – including produce, meat, deli and seafood – was in deflation at 2.3 per cent.

“Coles profit margin last financial year was 2.6 per cent. This means that for every $100 customers spend in our stores, Coles makes $2.60 profit. These profit margins have remained consistent since the 2020 financial year.”

A spokesperson for Woolworths said its first quarter (July to September) price increases were lower still.

“Average shelf price, or as it’s commonly referred to as Woolworths’ inflation rate, peaked at 10.5 per cent in November 2022 and was 2 per cent for the first quarter,” the company said in an emailed response to questions from the ABC.

“Fruit and vegetable average prices declined by approximately 12 per cent due to improved growing conditions.”

Outside the grocery sector, prices fell over the past year for clothing and footwear (-0.9 per cent), furnishings, household equipment and services (-0.3 per cent), and holiday travel and accommodation (-0.3 per cent).

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