Australia’s inflation falls to four-year low

Hopes for an interest rate cut have risen as inflation falls faster than expected, surpassing the RBA’s forecasts.

With inflation dropping to a three-year low, Aussie mortgage holders could benefit from a rate cut as early as February.

The Australian Bureau of Statistics reported underlying inflation at 0.5% for the December quarter, signaling a sharper-than-expected decline.

The trimmed mean inflation rate fell to 3.2% annually, down from 3.5% in the previous quarter, beating the RBA’s forecast of 3.4%.

Headline inflation, which includes volatile price movements, increased by 0.2% in the December quarter, bringing annual inflation to 2.4%.

ABS head of price statistics Michelle Marquardt noted that despite price drops in electricity and fuel, trimmed mean inflation remained higher than the CPI rate.

Market analysts predict a 75% chance of a 25-basis point rate cut at the RBA’s February board meeting, potentially lowering the cash rate to 4.10%.

Looking ahead, the rates market anticipates a total of 835 basis points in rate cuts for 2025, which could bring the RBA’s cash rate down to 3.5% by year-end.

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