FLAU - Australian Inflation Drops Sharply In December

2024-01-31 04:27:00 ET

Summary

• A further large fall in Australian inflation will encourage thoughts of earlier and perhaps more aggressive easing by the Reserve Bank of Australia (RBA) this year.
• The good news on inflation might be less frequent from now on, and this might not be the right time to jump on the bandwagon.
• The 3m run-rate looks fine at 2.7%, though it has begun to rise again, and next month, will likely rise further as the October 2023 -0.33% change will drop out and be replaced by what we expect to be a smaller fall for January.

By Robert Carnell , Regional Head of Research, Asia-Pacific

The rush to price in a more aggressive easing schedule may be misplaced

When you look at the run of data in 2022 and 2023, a big fall in inflation in December 2023 was almost inevitable. In December 2022, cold weather and floods combined with a shortage of natural gas for power stations, which together with flooded coal mines delivered a nasty mix of seasonal food price spikes as well as an energy shortage and energy price surges. This unhappily coincided with a big post-re-opening surge for holiday travel at Australia's peak holiday time pushing up recreation prices enormously and delivering the perfect storm in terms of inflation, which briefly hit 8.4% YoY....

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