Key Moments:
- Australia’s January headline CPI held at 3.8% y/y, exceeding the 3.7% consensus forecast.
- Trimmed mean inflation rose to 3.4% y/y in January, slightly above expectations of 3.3%.
- TD Securities’ strategists maintain that the RBA will likely need another rate hike, with May viewed as the next key window.
Inflation Profile in January
TD Securities’ Global Strategy Team reports that Australia’s January Consumer Price Index (CPI) stayed higher than anticipated, reinforcing concerns about persistent inflationary pressures. Both the headline reading and the trimmed mean measure came in above market expectations, signaling that price growth has not eased as much as hoped.
The team notes that headline CPI for January remained at 3.8% year-over-year, compared with a consensus forecast of 3.7% and unchanged from the prior 3.8% print. Trimmed mean inflation, described as a core gauge, inched up to 3.4% year-over-year, slightly above the 3.3% consensus and the previous 3.3% reading.
| Inflation Measure | January Reading | Consensus | Prior |
|---|---|---|---|
| Headline CPI (y/y) | 3.8% | 3.7% | 3.8% |
| Trimmed Mean CPI (y/y) | 3.4% | 3.3% | 3.3% |
On a month-over-month seasonally adjusted basis, the report highlights that headline CPI quickened to 0.5%, outpacing the 0.2% monthly rate recorded in each of the previous two months.
Drivers of Price Moves
According to the strategists, the faster pace of price increases in January was primarily led by the housing component. They emphasize that electricity costs rose sharply as Commonwealth and state-level electricity rebates expired, contributing significantly to the overall acceleration in inflation. In addition, new dwelling prices and rents posted stronger gains during the month.
At the same time, the report points out that some categories provided modest relief. The team cites declines in recreational prices and transport prices as the main offsets in an otherwise firm inflation print.
Policy Implications for the RBA
TD Securities’ strategists conclude that the January data confirms that inflation pressures are proving difficult to dislodge and that monetary policy may need to tighten further. They state that the figures support the case for a follow-up rate increase from the Reserve Bank of Australia (RBA).
They write, “Overall, Jan CPI reflect that price pressures remain sticky and the RBA needs another follow-up hike.” Regarding the policy outlook, the team adds, “Question is on timing and we think May is the next best opportunity.”
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