The Australian Bureau of Statistics (ABS) reported that the monthly Consumer Price Index (CPI) indicator rose 2.5% in the 12 months to January 2025. Inflation remained unchanged from December, with food, housing, and alcohol contributing the most to price increases.
Also Read: Australian Inflation Rate Hits Three-Year Low, Raising Hopes for Interest Rate Cuts [January 29]
Inflation Holds Steady, but Underlying Pressures Rise
ABS Head of Prices Statistics Michelle Marquardt confirmed that annual CPI inflation stood at 2.5% in January, the same as in December. However, underlying inflation showed a slight increase.
“Annual trimmed mean inflation was 2.8 per cent in January, up slightly from 2.7 per cent in December,” Marquardt said.
The CPI measure, which excludes volatile items like fuel and holiday travel, rose 2.9% in January compared to 2.7% in December. This indicates that underlying price pressures persist despite the steady headline inflation rate.
Figure 1: Monthly CPI Indicator in Australia (%) [ABS]
Food Prices Climb, Driven by Fruit and Grocery Costs
Food and non-alcoholic beverage prices rose 3.3% over the year, accelerating from 2.7% in December. Fruit prices soared 12.3%, with berries, avocados, mangoes, and citrus fruits becoming more expensive due to poor growing conditions and low summer supply.
Other grocery products also recorded increases, contributing to the overall rise in food costs.
Housing Costs Increase as Electricity Rebates Phase Out
The housing sector saw a 2.1% rise in annual inflation, up from 1.5% in December. Rents increased by 5.8% over the year but showed signs of slowing from the 6.2% annual rise recorded in December.
New dwelling prices grew by 2% in the past 12 months, the weakest annual increase since June 2021. Builders offered discounts and promotional deals, helping to slow the pace of new home price growth.
Electricity costs played a key role in the housing inflation rise. The Queensland government’s $1,000 electricity rebate introduced in July 2024 had kept electricity prices low. However, as households exhausted their rebates, electricity prices increased in January.
Marquardt explained that rebates had reduced electricity bills, but their impact lessened in January. As a result, electricity prices were 11.5% lower than a year ago, a smaller decline compared to the 17.9% drop recorded in December.
Figure 2: Electricity prices were 11.5% lower than a year ago, a smaller decline compared to the 17.9% drop recorded in December [ABS]
Fuel Prices Drop for First Time Since October
Automotive fuel prices fell 1.9% over the year, following a 1.4% decline in December. In monthly terms, fuel prices dropped 1.4% in January, marking the first decrease since October 2024.
Reserve Bank Cuts Interest Rates Amid Inflation Trends
The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points last week, lowering it from 4.35% to 4.1%. The central bank responded to 12 months of gradually declining inflationary pressures.
Saxo Chief Investment Strategist Charu Chanana noted that monthly CPI figures alone do not provide enough insight into the future policy path. However, she emphasised that inflation is softening, which justifies the RBA’s rate cut.
Government Welcomes Inflation Data
Treasurer Jim Chalmers and Finance Minister Katy Gallagher said the inflation data reflects steady progress.
“This is the first time in almost four years that headline inflation has been below 3 per cent for six consecutive months,” they said in a joint statement.
They pointed out that inflation was higher and rising when the government took office, but it has now declined alongside interest rates.
Economists See Positive Trends in Housing and Rental Costs
AMP Deputy Chief Economist Diana Mousina said inflation trends indicate a decline in services inflation. She noted that while electricity prices surged in January, broader inflation trends remain under control.
“I think the Reserve Bank would be taking today’s figures as quite good news,” she said.
Rental price growth is also slowing. National rent prices increased by 5.8% over the year to January, but this was down from 6.2% in December. Rising vacancy rates in most capital cities have contributed to the slowdown.
CreditorWatch Chief Economist Ivan Colhoun described the trends in housing and food prices as encouraging.
“Rental inflation peaked at just under 8 per cent but is now annualising at less than half that pace,” he said.
He also noted that new dwelling costs had declined over the past three months after peaking at nearly 20%. These trends are expected to put downward pressure on inflation in coming quarters.
Interest Rate Cuts Could Continue if Inflation Slows Further
With inflation stabilising and price pressures easing in key areas like housing and rentals, economists expect the RBA to consider further interest rate cuts.
Colhoun believes that falling costs in major CPI components could lead to additional rate reductions in the coming months.
“The RBA’s unusual February Monetary Policy Statement forecasts are bettered on the inflation front, allowing for some further moderate easing in interest rates,” he said.
Outlook: Inflation May Continue to Ease
The latest CPI data suggests that inflationary pressures are moderating, despite a few price increases in food and electricity. The RBA’s rate cut aligns with this trend, and further reductions may follow if inflation continues to ease.
With government subsidies affecting price movements, economists will closely monitor inflation in the coming months to determine whether it remains within the RBA’s target range.
