Cheaper fuel and energy bill relief have helped drag headline inflation down to its lowest rate since early 2021.

A 2.8 per cent rise in the September-quarter consumer price index marks a return to the Reserve Bank’s target range of two to three per cent, after a prolonged period above it.

The headline annual rate was down from 3.8 per cent in the June quarter and landed a little weaker than the consensus forecast.

On a quarterly basis the consumer price index lifted 0.2 per cent, well down from the one per cent rise in the June quarter.

In headline terms, inflation is back where the RBA wants it but that does not necessarily mean it will start cutting interest rates at the next board meeting, held on Melbourne Cup Day.

That’s because underlying inflation has become the focus to help manage the influence of energy bill relief and other cost-of-living measures that temporarily weigh on the headline number before they expire.

The trimmed mean underlying inflation measure landed at 3.5 per cent annually, down solidly from four per cent but still too high for interest rate cuts to start, Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said.

“The RBA will largely ignore the impacts of subsidies when weighing up interest rates next week,” he said.

The economic team remain of the view cuts won’t start until the second quarter of 2025.

State Street Global Advisors APAC economist Krishna Bhimavarapu said there were a number of positive takeaways in the data despite subsidies weighing on the headline result.

“Trimmed-mean inflation eased half a percentage point to 3.5 per cent year on year in line with high frequency indicators and should ideally help the RBA make a dovish pivot,” he said.

“Delaying such a pivot might get the economy socked with prolonged below par growth rate.”

Electricity prices fell 19 per cent in the quarter and would have otherwise marginally increased were it not for government subsidies.

Automotive fuel prices fell 6.7 per cent in the quarter as oil prices dropped off in response to lower demand around the world.

Falls across those categories offset the 1.3 per cent rise in recreation and culture, driven by both international and domestic travel during peak Europe travel season and school holidays.

Food and non-alcoholic beverage prices rose 0.6 per cent in the quarter, with prices pushed higher by dining out and takeaway, meat and seafood, and fruit and vegetables.

Treasurer Jim Chalmers welcomed the “encouraging progress in the fight against inflation”.

“Our policies, including energy rebates, are making a meaningful difference and helping in the fight against inflation but they don’t explain all the moderation in today’s figures,” he said.

Annual non-tradable inflation recorded its fastest moderation in almost three years, he said, lifting 4.1 per cent over the year to September, down from five per cent for the year to June.

“Today’s numbers show we are on track and on target for a soft landing in our economy,” the treasurer said.

Poppy Johnston
(Australian Associated Press)