According to the Australian Bureau of Statistics, CPI rose just 0.2% in the December 2024 quarter and 2.4% over the year. That’s the lowest level since March 2021 and well within the Reserve Bank of Australia’s (RBA) target range of 2-3%.
“This is the lowest annual figure in almost three years and below market expectations. It is now well within the RBA’s target band of 2-3 per cent,” said Real Estate Institute of Australia (REIA) President Leanne Pilkington.
“The important analytical series of trimmed mean, which excludes large price rises and falls, at 3.2 per cent for the year continued to trend down over the last eight quarters from its peak of 6.8 per cent in the December 2022 quarter. It was 3.6 per cent in the September quarter and 4.0 per cent in the June quarter.”
“Similarly, the weighted mean rose 3.4 per cent in the year to December 2024 compared to 3.7 per cent in the year to September and 4.2 per cent in the year to June.”
Domain’s Chief of Research and Economics, Dr Nicola Powell, also welcomed the figures but urged a cautious approach to interest rate adjustments.
“It’s encouraging to see underlying inflation showing a clear decline, a trend which provides confidence that inflation is sustainably heading back towards the RBA’s target range, and could lead to an interest rate cut for the first time since November 2020,” she said.
However, Dr Powell acknowledged the strength of the labour market might make the RBA hesitant.
“The downward trend should provide enough confidence that inflation is steadily and sustainably returning to its target range, after annual inflation rose in November from October. Although, the continued strength of the labour market could see the RBA remain cautious.”
The CPI report attributed the inflation slowdown to falling electricity and automotive fuel prices and moderating price rises for new dwellings.
Rents also rose at a slower pace, with a 0.6% quarterly increase and a 6.4% annual rise – down from 6.7% in September and 7.3% in June.
Ms Pilkington noted the implications for borrowers, saying: “With all three broad measures of inflation at the lowest they have been since early 2022 and below the RBA’s forecasts of 2.6 per cent for headline inflation and 3.4 per cent for annual trimmed mean inflation for the December 2024 quarter, borrowers can reasonably expect that a cut in interest rates by the RBA is imminent.”
Dr Powell stressed the importance of balancing relief with stability.
“Cutting rates too quickly could risk reigniting inflation, which would keep pressure on household budgets. However, waiting too long to adjust rates could prolong financial strain and an unnecessary handbrake on the economy,” she said.
Ms Pilkington also noted the potential impact of an interest rate cut on household finances.
“For each drop in interest rates by 0.25 per cent, monthly repayments would decrease by around $100 and the proportion of family income required to service their loan would drop by 1 percentage point from the current historically high level of 48.6 per cent,” she said.
