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Australia’s inflation rate eased to 4.9% in October, reducing likelihood of another rate rise

<span>Photograph: Joel Carrett/AAP</span>
Photograph: Joel Carrett/AAP

Australia’s inflation rate has eased sharply in October as weak consumer spending made it less likely the Reserve Bank will inflict another interest rate rise on the economy.

The consumer price index rose at an annual clip of 4.9% last month compared with a 5.6% pace in September alone, the Australian Bureau of Statistics said on Wednesday. Economists had expected CPI to come in at 5.2%.

Among the big movers was a 6.1% increase in the cost of housing, while transport costs rose 5.9% and food and non-alcoholic beverages increased 5.3%. Government support helped to moderate the increases in rents and electricity.

Compared with the previous month, CPI retreated 0.3% in October, according to Westpac, which had been tipping a 0.2% increase. Rents were down 0.4% for the month, while holiday travel costs dropped 7%.

The inflation figures are the last major numbers the RBA board will have to consider when it meets next Tuesday for its final meeting of the year on interest rates.

The CPI figures cover a period preceding this month’s interest rate rise, the central bank’s 13th in a year and a half. The monthly survey covers only about 70% of the basket of goods and services, so they are given less weight than the quarterly figures.

The RBA governor, Michele Bullock, has warned of “homegrown” inflation being more persistent than expected. At a gathering of central bankers in Hong Kong on Tuesday, she indicated the RBA may be prepared to hold off further rate hikes for now.

“We’re at a period where we have to be a little bit careful,” Bullock told the conference.

“We want to make sure we keep inflation under control and we bring it back down to our [2% to 3%] band,” she said. “But we also need to make sure we do that in a context of not imposing on the economy too much, and raising the unemployment rate so much.”

David Bassanese, the chief economist at BetaShares, said the modest inflation figures followed yesterday’s ABS retail sales numbers, which showed turnover unexpectedly shrank 0.2% last month.

“In the space of two days, therefore, we’ve received reassuring news that both consumer spending and inflation continue to ease, which should obviate the need for the RBA to dampen Christmas cheer with another rate increase next week,” he said.

Leigh Merrington, the acting ABS head of prices statistics, said a CPI gauge that excludes volatile items came in at 5.1% for October, a retreat from 5.5% in September. The so-called trimmed mean measure slowed to 5.3% last month from 5.4% in September.

That latter set of numbers might be why the market reaction was a bit mixed even though the headline CPI figure surprised on the downside. The Australian dollar hovered around the 66.5 US cent mark, while stocks ended the day about 0.3% higher or little changed from the pre-release level.

Rents in October were 6.6% higher than a year earlier, although that increase was down from the annual clip of 7.8% in August and 7.6% in September. All up, housing costs were 6.1% higher than a year earlier.

A boost in Commonwealth rent assistance took effect from 20 September, without which the annual rental increase would have been 8.3%, Merrington said.

Gas and other household fuels were also up 13%, accelerating from 12.7% in September.

Electricity costs were 10.1% higher but at least the annual pace had eased from 18% in September. Without the energy bill relief fund, the increase in power prices would have been 18.8%, Merrington said.

Automotive fuel was 8.6% higher than in October 2022 but at least the pace of increases had slowed from the 19.7% pace clocked in September.

“The reinstatement of the full fuel excise tax to 46 cents per litre on 30 September 2022 contributed to the annual increase to September 2023 but not to October 2023,” Merrington said. “This, combined with a monthly fall of 2.9%, has reduced the annual rise for automotive fuel.”

Food and beverages last month were 5.3% higher from a year earlier, going in the wrong direction after increases of 4.4% in August and 4.7% in September.