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Australian inflation drops for a second month ahead of another Reserve Bank interest rate call

Inflation drops for a second month in a row ahead of key Reserve Bank interest rate meeting

  • Inflation sinks for second month 
  • Cost of living is still very high
  • Raises hopes rate rises may pause after 10 hikes 

Consumer prices lifted 6.8 per cent in the 12 months to February, sinking from 7.4 per cent annual growth in January.

Another decline in inflation in the Australian Bureau of Statistics’ monthly consumer price index was anticipated after a sharper-than-expected fall from the strong December result.

Consensus expectations were for a 7.2 per cent rise in the year to February. 

While rises in the cost of living are moderating, inflation is still very high and well above the RBA’s target range of two-to-three per cent. 

‘This marks the second consecutive month of lower annual inflation, also known as ‘disinflation’, from the peak of 8.4 per cent in December 2022,’ ABS head of prices statistics Michelle Marquardt said.

The cost of living in Australia has dropped for the second month in a row ahead of a Reserve Bank meeting next Tuesday

‘New dwellings grew 13.0 per cent in the 12 months to February which is the lowest annual growth since February 2022 as price rises for building materials continue to ease. Rent prices rose again due to the tight rental market, maintaining the 4.8 per cent annual growth recorded in January,’ she said. 

The indicator, which measures the change in the price of a basket of goods and services consumed by households, was flagged by the Reserve Bank as one of the key pieces of economic data to absorb ahead of the April cash rate decision.

Grocery prices have surged over the last year, with an annual rise of 12.5 per cent for bread and cereal products and a 14.3 per cent rise for dairy and related products.

Power prices were up 17.2 per cent compared with a year ago.

The central bank has given itself room to pause or hike again depending on incoming data flows.

Retail trade, another important source of data for the RBA, came in weak in line with expectations, lifting a modest 0.2 per cent in February.

But a robust employment report and signs of resilience in the business community suggest there’s still momentum in the economy.