Mortgage holders get promising news in latest inflation figures

The headline monthly consumer price index eased to 4.9 per cent in October from 5.6 per cent and the underlying measure, excluding food, fuel and holiday travel, grew at an annual rate of 5.1 per cent in October, the lowest reading since April last year and more than 2 percentage points below the peak reached in December 2022.

Prime Minister Anthony Albanese said the inflation slowdown was "a good thing...and shows we are headed in the right direction".

But, despite the improvement, inflation remains well above the central bank's 2 to 3 per cent target band and recent remarks by Reserve Bank of Australia governor Michele Bullock highlighting her determination to bring inflation down have stoked concerns about further rate hikes.

Ms Bullock said last week that the inflation problem was "increasingly homegrown and demand driven", and the right response was "a more substantial monetary policy tightening".

Speaking at a forum in Hong Kong on Tuesday, the RBA governor acknowledged that high interest rates had made people "very unhappy".

"That [tighter monetary policy] has created a lot of political noise and a lot of noise from the general public," she said. "People are very unhappy".

But, despite this, "households and businesses are actually in a pretty good position," Ms Bullock said, citing significant savings, rising housing prices and manageable levels of debt.

Inflation in October was driven higher by more expensive food, housing, fuel and insurance, partially offset by cheaper clothes.

Among the biggest price moves were bread (up 8.5 per cent), dairy (7.8 per cent), electricity (10.1 per cent), gas (13 per cent), fuel (8.6 per cent) and rent (6.6 per cent). The cost of garments fell 1.7 per cent.

There as only a modest 0.1 of a percentage point decline in the Reserve Bank of Australia's preferred measure of inflation, the trimmed mean, which dropped to 5.3 per cent.

The results add to evidence that inflation pressures are easing, but progress remains slow.

Treasurer Jim Chalmers said that although the lower inflation reading was welcome, he cautioned that the monthly numbers "jump around a fair bit" and warned that inflation "will remain higher than we'd like for longer than we'd like".

The Australian Bureau of Statistics reported that measures like energy bill rebates and rent assistance had helped to moderate the costs hitting households, including limiting the increase in electricity charges to 8.4 per cent instead of 18.8 per cent.

Dr Chalmers said this showed the effectiveness of cost-of-living relief provided by the federal government.

But shadow treasurer Angus Taylor said inflation was "coming down too slowly" and accused the government adding to the problem.

"The government's wrong priorities and bad decisions are making it a whole lot harder to get inflation down than it should be," Mr Taylor said.

But EY chief economist Cherelle Murphy is among those who think the central bank will leave interest rates on hold in December.

"It's clear the 13 rate hikes...are working [and] it's likely that the Reserve Bank will leave the...cash rate on hold when the board meets next week," Ms Murphy said.

However, she warned there were concerns about whether inflation was coming down fast enough and the RBA was likely to pay close attention to economic data in deciding whether or not to hike again.

Betashares chief economist David Bassanese is among those tipping that December quarter inflation figures due out in late January could be crucial.

"Although it's not my base case, if [they reveal] surprisingly persistent service sector inflation the RBA will likely raise rates again in February," Mr Bassanese said.

HSBC chief economist Paul Bloxham said that, having hiked in November and with monetary policy clrealy restrictive, "the RBA will...likely be more cautious and patient".

While another rate rise was possible, "our central case is that they will remain on hold" during the first half of 2024, Mr Bloxham said.