November rate cut ‘not a done deal’ with August inflation firmer than expected: CBA Economists

CBA Economists Harry Ottley and Trent Saunders today published a note on the August Consumer Price Inflation (CPI) indicator. Below is an overview of the analysis.

Australia’s monthly Consumer Price Index (CPI) indicator for August came in hotter than expected, rising 3.0 per cent over the year. 

“This data adds tension to the economic outlook. While we still expect the RBA to cut rates in November, today’s release shows that’s not a done deal,” said CBA Economist Harry Ottley.

While electricity and travel prices fell, they didn’t unwind as much as forecast, and higher-than-expected results in housing and market services suggest inflationary pressures are building again.

The trimmed mean measure, the Reserve Bank of Australia’s (RBA) preferred gauge of underlying inflation, eased to 2.6 per cent annually. But the quarterly momentum is stronger than anticipated, with market services inflation rising 1.1 per cent in August, up from a forecast 0.7 per cent.

“Market services inflation is a key focus for the RBA, and the strength in components like insurance and dining out will be closely watched,” Mr Ottley said.

Travel and fresh food prices fall but, not enough to shift the inflation story

Holiday travel and accommodation prices fell 3.5 per cent in August, partly reversing July’s surprise increase. Domestic travel dropped 4.2 per cent, while international travel fell 2.7 per cent. These declines helped ease headline inflation but were outweighed by firmer results in housing and services.

Fresh food prices were mixed. Fruit prices fell 0.8 per cent, while vegetables saw a sharper decline of 4.6 per cent, helping offset some of the upward pressure from services and housing.

Housing and services inflation remain firm

Housing costs fell 0.5 per cent in August, driven by lower electricity prices from government rebates. But the decline was smaller than expected. New dwelling costs rose 0.4 per cent for the month and rents inflation slowed to 3.7 per cent annually, its slowest pace since November 2022.

Electricity prices fell 6.3 per cent in August but remain 24.6 per cent higher over the year.

Insurance prices rose 1.6 per cent for the quarter, reversing last quarter’s fall. Dining out inflation also picked up, with restaurant meals up 1.3 per cent and takeaway meals rising 1.5 per cent. Vehicle maintenance and services remained strong, rising 1.1 per cent for the quarter and 4.6 per cent annually.


CBA still expects a November rate cut to 3.35 per cent, following a hold in September. But the firmer inflation data means the RBA may need to reassess and could be a line ball call depending on the outcome of the September quarter inflation data.

See the full report here.