Australia's core inflation eased in November, with the closely-watched trimmed mean gauge advancing 3.2% over the 12 months, down from 3.3% previously and matching economists' expectations. The headline Consumer Price Index (CPI) rose 3.4% during the same period, against a forecast of 3.6%. This slowdown in core inflation strengthens the argument for the Reserve Bank of Australia (RBA) to maintain its current interest rate stance, reducing immediate pressure for further rate hikes.
Reserve Bank Governor Michele Bullock confirmed that the Australian economy is showing signs of cooling, with demand growth moderating broadly as anticipated. She highlighted a softer housing market and a weakening labor market. Despite these developments, Bullock expressed uncertainty about whether the current interest rate levels are sufficient to curb inflation effectively, acknowledging that the economy has proven more resilient than initially thought. This sentiment suggests that while a pause in rate hikes is more likely, the option for further tightening remains on the table if needed.
Market reactions saw the ASX 200 climb, paring earlier losses, after Bullock's remarks calmed fears of imminent rate increases. The Australian interest rate market is now pricing in only 5 basis points of hikes for the August meeting, with a full 25 basis point hike not fully priced until March 2027. This shift reflects increased market confidence that the peak of inflation may be behind us, also aided by falling oil prices. However, upcoming June quarterly inflation figures, particularly core inflation running above 3.8%, will be crucial in determining the RBA's next move.
