Shadow treasurer Ted O’Brien said markets still expected the next rate movement to be a hike and that the government’s “spending spree” was partly to blame.
“Only Jim Chalmers, a spinner worthy of Australia’s Ashes line-up, would describe inflation remaining well above the RBA’s target band as ‘encouraging’,” he said.
The biggest contributors to annual inflation in November were prices of essentials, with housing costs up 5.2 per cent, food and non-alcoholic beverage prices up 3.3 per cent and transport costs up 2.7 per cent.
While electricity costs rose 19.7 per cent in the year to November, the growth was nearly half the 37.1 per cent figure from the previous month, helping to dampen the headline inflation figure. Excluding the effect of Commonwealth and state government electricity bill relief, electricity prices rose 4.6 per cent in the year to November – down from 5 per cent in the 12 months to October.
“While overall inflation is trending lower, the pace of decline remains modest, reflecting persistent cost pressures in key sectors.”
RSM Australia economist Devika Shivadekar
Rents (up 4 per cent) and medical and hospital services (up 4.6 per cent) pushed up annual services inflation, but these were partly offset by a fall in domestic holiday travel in November following high demand in October when holidays and major sporting events occurred.
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Fruit and vegetable prices rose 2.7 per cent, up from 1.8 per cent in October, with higher prices for asparagus, pumpkins, broccoli, apples and citrus fruits among the contributors.
By state, Brisbane recorded the largest jump in inflation over the year at 5.1 per cent, followed by Hobart (up 3.6 per cent) and Sydney (up 3.4 per cent). Perth (up 2.8 per cent) registered the lowest annual increase in prices.
RSM Australia economist Devika Shivadekar said the figures presented a “mixed bag” for the Reserve Bank board, which meets in February to make its next interest rate decision.
“While overall inflation is trending lower, the pace of decline remains modest, reflecting persistent cost pressures in key sectors,” she said. “Inflation is easing, which supports holding rates steady, but housing and energy costs remain stubbornly high, signalling underlying price pressures.”
The next key data point for the Reserve Bank before its February meeting will be a labour force report, which will indicate how much capacity there is in the economy, and the amount of pressure on wages: a key input for businesses making pricing decisions.
The Australian sharemarket spiked when the latest inflation figures were released, and was trading 0.4 per cent higher at midday.
CreditorWatch chief economist Ivan Colhoun said the trimmed-mean reading appeared “very problematic” for the RBA and that a rate hike remained possible.
“Today’s second monthly CPI instalment appears to confirm inflation is running – and is likely to continue to run – at an above 3 per cent rate,” he said. “That isn’t likely to be good enough for the [RBA] board, meaning a recalibration of monetary policy at the February board meeting is a very distinct likelihood (rather than possibility).”
Deloitte Access Economics partner Stephen Smith said inflation remained “elevated” and that the Reserve Bank would remain on high alert for the next few months.
However, he said increasing the cash rate in February would be premature because of the “messiness” of factors such the effect of electricity rebates and changes in the way the ABS calculates inflation.
Instead, Smith said it would be more prudent for the RBA to wait and watch developments in the labour market. “Recent softness in employment numbers makes it unlikely that growth in real wages will lift.”
EY senior economist Paula Gadsby said that although inflation came in lower than in October, both headline and trimmed mean inflation were consistently above the 2-3 per cent target band, highlighting the risk of persistent price pressures.
“For the Reserve Bank to reverse this recent trend and get inflation moving back to the mid-point of the target band, interest rates will need to be lifted in the first half of 2026,” she said.
