00:00Core inflation takes off the most volatile price movements in the period.
00:07So for example, if petrol goes up 5% during the period, then we take that out.
00:13So when we take those more volatile price changes out, we get what we call an underlying
00:17measure of inflation.
00:19And that's much more stable and gives us a better idea of the trends in inflation rather
00:23than it moving around a lot.
00:25And what's happened with underlying inflation over the past couple of years?
00:31Well underlying inflation rose significantly in 2022, similar to headline inflation, but
00:36it didn't peak quite as high.
00:38So it didn't quite capture all those very, the largest price increases, but it has come
00:43down more slowly than headline inflation as well.
00:46So for example, in the November data today, headline inflation was 2.3% while the trimmed
00:52mean inflation was 3.2%, but the good news is that it has been declining.
00:59And so how significant is it that there's been this 0.3% fall?
01:05Well look, this is the monthly CPI inflation indicator.
01:09So the more important measure is the quarterly one, which we get on the 29th of January ahead
01:15of the RBA's February meeting.
01:17But all the information we get in today's release does let us make a more accurate forecast
01:23of what we expect for that Q4, so the December quarter CPI number, which we get at the end
01:29of this month.
01:30So we were able to get a lot of data on things like fuel and food and insurance and holiday
01:37prices and all those things that gives us an idea of what Q4 as a whole might look like.
01:43So what effect will this have on the Reserve Bank's next decision on interest rates and
01:48that next figure, as you mentioned, coming up soon that we've got a better idea about now?
01:53Well, the RBA's trimmed mean, so that underlying or core inflation forecast for Q4 at the moment
01:59is 0.7% over the quarter and 3.4% over the year.
02:04The data today suggests that there is downside risk to that forecast.
02:09So it's likely that the Q4 numbers will come in lower than expected.
02:14Now that's a good sign when inflation is coming down more quickly than the RBA expects and
02:19coming back down to their target band more quickly.
02:22That makes it more likely that we see rate cuts come through sooner rather than later.
02:26Yeah.
02:27And so for all those people out there trying to pay off a mortgage at the moment, they're
02:31really keen to find out when a rate cut is likely.
02:36What's your tip on now on when that's going to happen?
02:40Look, we're expecting that the first rate cut will be in May, but today's data does
02:47suggest that the probability of Feb has risen.
02:50But the RBA doesn't only look at the inflation data.
02:54So it also looks at what's happening in the labour market, what's happening with spending
02:57as well.
02:58And in the labour market, we've seen quite a bit of resilience.
03:01So unemployment fell to 3.9% in November, and today's data showed that job vacancies
03:07increased for the first time since mid-2022.
03:11So that might give the RBA a little bit of concern that that resilience in the labour
03:15market might mean that inflation is a bit higher than it would be otherwise.
03:22We'll also get some retail spending data out tomorrow, which will capture some of those
03:26Black Friday sales.
03:27That's also something the RBA is looking at when it thinks about setting rates.
03:32It's happy for households to go out and spend a bit, but it doesn't want households to go
03:35out and spend a lot because that makes it harder to bring inflation down.
03:39So inflation is not the only data point that the RBA is looking at as to when it starts
03:44to cut rates.
03:45And with the federal election almost upon us sometime soon, how do you rate how this
03:50Albanese government has managed the economy, especially in the face of what's been happening
03:55with interest rates over the last three years?
03:57Look, it has been a very hard time, so I won't make a judgment on that.
04:04But we have seen that some of the cost of living relief measures from both the federal
04:09government and other state governments as well have made an impact on inflation.
04:14So for example, they've brought electricity prices down quite significantly over the past
04:19few months.
04:20In November, we saw a bit of a rise and some of those rebates are starting to get used
04:25up.
04:26But I think the key point for Australian households and businesses is that we should be getting
04:31through the toughest part already.
04:34And there are some positive signs for 2025 that things will be getting better.
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