• Prices fell by 0.1% in January 2023 but remain 7.4% higher over the year.
  • There are signs of goods inflation moderating, with some goods prices actually falling in the month.
  • Consumer demand is weakening and we reiterate our view that annual inflation peaked in Q4 22.


Prices fell by 0.1%/mth in January 2023 on a seasonally adjusted basis, according to the Monthly CPI Indicator. This was the first recorded monthly decline in almost two years. 

In annual terms, inflation fell 1 percentage point from the 8.4% pace in December to 7.4%/yr in January. That was a larger fall than any forecaster expected, and the market median centred on a 8.1% print. CBA was near the bottom of the range of consensus estimates, forecasting a 7.8%/yr outturn. 

The key takeaway from today's CPI data in our view is the evidence that goods inflation is coming down as consumer demand is softening. The RBA had noted in their February Statement on Monetary Policy that 'strong demand continued to drive strong goods price inflation'. But today's GDP data shows that goods consumption fell by 1 .0% in Q4 22. 

Today's data suggests we are seeing signs of easing. Inflation is still high but it is moving in the right direction. Clothing & footwear prices as well as household furnishings and equipment prices fell in January. Some of the decline reflects usual seasonal price patterns. But we think the data is beginning to paint a picture of weakening consumer demand as the impact of rate hikes are beginning to more fully flow through into price dynamics. That is showing up in goods inflation now, but over time, we see that being a drag on services inflation.

The detail 

While the headline monthly CPI indicator rate fell to 7.4%/yr, CPI excluding volatile items fell to 7.2%/yr. The ABS also noted that excluding the travel component, the annual rate of inflation would have been 6.7%/yr. 

The ABS in the December 2022 release suspended the trimmed mean CPI measure from the monthly series. They cited it as not being a 'reliable indicator' and are currently investigating. This series was not reinstated in the January release. 

Food prices edged slightly lower in January. Fruit & vegetable prices fell by 2.9%/mth. Continuing improvements in supply and recovery from previous wet weather was an important factor. That was offset by a similarly sized increase in non­alcoholic beverages, which typically sees seasonal increases in January. 

There were larger-than-expected discounting of clothing & footwear prices, which fell by 3.6%/mth. Garments alone fell by 5.0%/mth. The RBA had noted 'particularly strong' price increases for clothing in Q4 22, which suggested to them still-strong consumer demand. Larger-than-usual discounting looks to us to be a sign of this demand unwinding.

The housing group came in largely as expected. Housing-related prices were up 9.8%/yr. Softening new dwelling price inflation is being offset by rising rental inflation. Rents increased strongly again, with the pace of increase picking up to 0.7%/mth from 0.5%/mth previously. Annual rent inflation was 4.8%/yr and Corelogic's advertised rents series strongly suggests rents will rise much further. The rental market is very tight with vacancies at very low - in some cases record­low levels. Rental demand has been supported too by an increase in migration. 

New dwelling purchase price inflation moderated. The annual pace of price increase has fallen to a still-high 14.7%/yr, but is well down from peak increases of more than 20%/yr. The flow of new housing construction (and alterations and additions) has eased considerably, but there is still a large pipeline of previously approved work that needs to be worked through. 

Recreation & culture prices moderated in January. The key driver was a 7.2%/mth fall in travel & accommodation prices. This follows a massive 27%/mth lift in December as pent-up demand for travel over the holiday period drove up prices. A further, and larger, fall is anticipated in February as per the normal seasonal pattern. Other recreation prices still show elevated price increases. More data on services ­related inflation will show up in the February release. Most market services are measured in the second month of the quarter and administered services are generally measured in the last month. 

Furnishings, household equipment and services fell by 0.5%/mth and in annual terms moderated from 8.5%/yr to 6.8%/yr. While a detailed breakdown of the expenditure groups within this is not provided by the ABS, we think the decline is reflecting broad-based declines in the prices for various housing-related goods. Housing market turnover has slowed considerably, and home prices are well down from their peaks. This naturally sees fewer purchases for housing-related goods. 

We note that domestic and household services are only measured in the second month of the quarter. The ABS' methodology means that these are assumed to have had zero price change in the month. That also means that household goods price declines is larger than the 0.5% fall measured for the overall CPI group. 

Transport prices rose by 0.4%/mth. A 1.1%/mth increase in automotive fuel prices drove the increase. Petrol prices at the bowser continued to rise in February. We estimate it will contribute ~0.1%pts to next month's CPI print.

Today's data supports our view that inflation peaked in Q4 22. We currently anticipate the Q1 23 quarterly CPI to show a 1 .3%/qtr lift in the headline CPI and 7.0%/yr. This will be firmed up after the February monthly CPI indicator is released.

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CBA’s Global Economic and Markets Research (GEMR) team publishes a wide range of economic and financial research each week covering the latest data, trends, policy developments and topical issues in Australia and other major economies. To access these publications please visit the GEMR website.

Our Economic Expert

Stephen Wu is an economist in the Australian Economics team having joined from the Reserve Bank of Australia in 2021. He has more than three years of experience as an economist covering both the Australian and global economies. He holds a Bachelor of Commerce in Economics (Honours) and Finance and a Bachelor of Arts degree from the University of Sydney.