Inflation holds steady in January in Australia.

Australia's Annual Inflation Holds Steady in January, Energy Rebates Offset Price Rises

Australia's annual inflation rate remained stable at 2.5% for the 12 months leading to January, in line with December figures, despite rising prices in other areas. The result slightly missed the 2.6% increase that economists had anticipated for the first month of 2025. Economists had expected a slight rise in inflation driven by increases in electricity prices as energy rebates were gradually exhausted.

Since the launch of the 2024-25 Commonwealth Energy Relief Fund (EBRF) in July 2024, electricity prices have been easing headline inflation. January's Consumer Price Index (CPI) revealed a decrease of 11.5% in electricity prices. Without factoring in energy rebates, however, the decline in electricity prices would have been a more modest 1.2%.

The January decrease in electricity prices was notably smaller than the 17.9% drop recorded in December, with most energy concessions, including Queensland's one-off $1,000 energy rebate, having already been fully used.

"Some households had already used up the full value of the rebate, leading to a lower impact in January compared to December," explained Michelle Marquardt, ABS head of price statistics.

In other areas, the rise in prices was driven by food and non-alcoholic beverages. Annual trimmed mean inflation climbed to 2.8%, up from 2.7% in December.

Key points:

  • Australia's annual CPI remained at 2.5% in the 12 months to January, slightly below the expected 2.6%.
  • Electricity prices fell by 11.5%, thanks to ongoing energy rebates.
  • Food and non-alcoholic beverages contributed to price increases in January.

Food Inflation Accelerates as Housing Costs Show Signs of Slowing

Australia's inflation rate for January showed an uptick, with food and non-alcoholic beverages being the main drivers. Prices in this category rose by 3.3% annually, up from 2.7% in December. Fruit prices were the largest contributor, climbing 12.3% compared to the previous year. Berries remained expensive due to poor growing conditions in mid-2024, while the lower supply of avocados, mangoes, and citrus fruits pushed prices higher.

Almost all grocery items in this category saw price increases over the past year, except for dairy. Bread and cereal products went up by 3%, meat and seafood by 4.7%, and non-alcoholic beverages by 2.7%.

Meanwhile, inflation in the housing category eased slightly. Housing prices rose by 2.1% in the 12 months to January, up from 1.5% in December. This increase was mainly driven by higher electricity prices for Queensland households that had exhausted state energy concessions. Rent prices rose 5.8%, which is slower than the 6.2% increase recorded in December. This slowdown in rent price growth is attributed to rising vacancy rates in most capital cities. CoreLogic's latest Home Value Index (HVI) revealed a modest 0.4% increase in rental prices in January, indicating a general easing in rental price growth.

New dwelling prices also showed signs of slowing, with a 2% rise in January, marking the lowest annual increase since June 2021. The slowdown is linked to project home builders offering discounts and improved availability of materials and labor.

RBA Rate Cut Likely as Inflation Moves in Right Direction

The Consumer Price Index (CPI) for January rose by 2.5% annually, with core inflation rising slightly to 2.8%. Economists believe these figures support the Reserve Bank of Australia's (RBA) forecasts, with a potential rate cut expected later this year.

According to Tapas Strickland, NAB's head of markets economics, the latest CPI data reinforces expectations that the RBA will cut rates again after the February reduction. However, he noted that the likely rate cut would happen in May.

Josh Gilbert, market analyst at eToro, emphasized that while this CPI report may not directly prompt further rate cuts, it provides reassurance that inflation is heading in the right direction and supports the recent cash rate reduction. RBA Governor Michele Bullock has stated that monetary policy will remain restrictive, even after the cash rate was reduced to 4.10%.

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