Inflation's surprising slowdown in November: A closer look at the numbers
The November consumer price index (CPI) revealed a 3.4% annual increase, a welcome drop from the previous month's 3.8% surge. This positive trend is a result of a trimmed mean inflation rate of 3.2%, down from 3.3% in October. The Australian Bureau of Statistics (ABS) data indicates a significant slowdown in inflation, which has economists and policymakers alike taking notice.
The initial market reaction was a slight dip in the Australian dollar, as the data exceeded economists' expectations. This follows the Reserve Bank's recent concerns about inflation, which had surged above its 2-3% target range in the latter half of 2025. The October inflation surprise, the first complete monthly CPI data from the ABS, highlighted a 3.8% annual increase, a notable jump from the previous month's 3.4%.
Westpac's chief economist, Luci Ellis, described the November CPI as a "very pleasant surprise." She attributed this to various factors, including the impact of electricity price rebates on overall CPI. Ellis noted the current data's volatility, emphasizing the need for careful interpretation.
Housing emerged as the largest contributor to annual inflation in November, with a 5.2% increase. Food and non-alcoholic beverages followed with a 3.3% rise, while transport costs increased by 2.7%. The annual goods inflation rate stood at 3.3% in November, down from 3.8% in October, primarily due to a slowdown in electricity price hikes.
Electricity prices, which soared 37.1% in October, experienced a more moderate 19.7% increase in November. Services inflation also softened, rising 3.6% annually in November, compared to 3.9% in October, influenced by the October school holidays' travel demand.
With the RBA's interest rate setting board meeting on the horizon, the latest inflation data is crucial. Governor Michele Bullock indicated that the central bank will decide whether to maintain or adjust rates in 2026. Economists' forecasts vary, with some predicting a rate hike, while others anticipate a hold. Westpac's Ellis believes the RBA may reconsider its stance, given the recent inflation trends and the bank's optimistic growth outlook for Australia.
The ABS will release December and quarterly CPI data in January, providing the RBA with an updated inflation assessment before its next meeting. Economists initially projected a 0.3% November headline inflation rise, resulting in a 3.7% annual increase. However, the trimmed mean was expected to remain stable at 3.3%.
As the story unfolds, the market's reaction to the November CPI data highlights the ongoing economic challenges and the RBA's delicate balance in managing inflation. With further inflation data on the way, the central bank's decisions will significantly impact Australia's economic trajectory.
