Inflation Steady, Core Prices Rise, Rate Cut Unlikely

Australia’s inflation rate held steady in January, but a slight uptick in core inflation has put a damper on hopes for another interest rate cut anytime soon.

Fresh data from the Australian Bureau of Statistics (ABS) this morning showed inflation sitting at 2.5% over the past year—slightly better than the expected rise to 2.6%. However, the trimmed mean, a key measure of core inflation, unexpectedly climbed to 2.8%, higher than the 2.6% economists had forecast. While still within the Reserve Bank of Australia’s (RBA) target range, this increase could keep policymakers cautious about cutting rates again too soon.

The biggest price hikes came from food (up 3.3%), housing (up 2.1%), and alcohol and tobacco (up 6.4%), with fresh fruit costs soaring by 12.3% compared to last year. On the flip side, electricity prices have dropped 11.5%, and fuel prices are down 1.9%.

This update comes just a week after the RBA cut interest rates but warned that inflation still needs to be brought under control for the long haul. Market analyst Josh Gilbert from eToro says while today’s numbers don’t necessarily justify further rate cuts, they at least show inflation is trending in the right direction.

“The biggest worry right now is that disinflation could stall, which is why the RBA remains cautious despite the recent rate cut,” Gilbert explained. “We’ve seen a similar situation in the U.S., where inflation has been sticky, making the Federal Reserve hesitant to ease rates.”

With Australia’s job market still holding strong, another cut in April seems unlikely. Instead, the RBA will be watching Q1 data closely—if inflation keeps falling, May could be the next realistic window for a rate cut.

Before today’s figures were released, markets were only pricing in a 19% chance of an April cut. Now, with core inflation creeping up, those odds might drop even further.