ABS' consumer price index (CPI) data published on Wednesday revealed continuing disinflation as prices rose 0.2% in Q3, slower than the 1% rise in the June quarter.

Key drivers of this slowdown were significant declines in electricity prices (down 17.3%) and fuel prices (down 6.7%), which offset increases across most goods and services.

This September CPI outcome was lower than the market's expected 2.9% annual pace and down from 3.8% in the previous quarter.

The ABS also noted this is the lowest annual inflation rate since the March 2021 quarter when CPI sat at 1.1% before jumping above the 3% range.

For mortgage holders hoping for relief in the current high-interest-rate environment, this development is encouraging.

However, immediate cash rate cuts may still be off the table for this year.

What will the RBA think about the September inflation rate?

Frankly, not much.

The RBA has repeatedly emphasised the need to see inflation moving sustainably toward the 2-3% target range before any decision about cash rate cuts will be considered.

And by inflation, they mean underlying inflation.

"When prices for some items move by large amounts, measures of underlying inflation like the trimmed mean can provide additional insights into how inflation is trending," said Michelle Marquardt, ABS head of prices statistics.

Trimmed mean data removes items with volatile price changes, which include electricity and fuel that weighed on headline figures.

With prices rising for most goods and services, trimmed mean annual inflation did in fact rise 3.5% in the September quarter, well above the RBA target but down from 4% in the previous quarter.

September quarter trimmed mean inflation rose 0.8%.

"Fifty-six percent of the basket by weight continues to rise at over 3% annualised, little changed from last quarter, [so] we do not expect the RBA to be distracted by temporary fluctuations in the headline," said Taylor Nugent, NAB senior market economist.

Looking to the RBA meeting next week, the NAB economist expects little change in the Board's near-term trimmed mean inflation forecast.

In its August 2024 Statement on Monetary Policy (SMP), the RBA projected trimmed mean inflation to land at 3.5% by year-end, gradually falling to 2.6% by December 2026.

A fresh set of forecasts in the Statement is expected to be released after the RBA Board meets on Tuesday.

Which prices increased in the third quarter?

According to the ABS, price rises for new dwellings and tobacco drove goods inflation higher in the third quarter.

However, Federal government energy rebates rolled out in Q3 pulled annual goods inflation down to 1.4%, lower compared to 3.2% in the June quarter.

"The 2024-25 Commonwealth Energy Bill Relief Fund rebates in all states and territories and state government electricity rebates in Queensland, Western Australia and Tasmania led to a large fall in electricity prices this quarter," Ms Marquardt said.

Without these rebates, electricity prices would have increased by 0.7%.

"Electricity alone subtracted 40 basis points from quarterly headline inflation on a seasonally adjusted basis," Mr Nugent noted.

However, services inflation remains persistently sticky, with the latest quarterly figures showing services rose 4.6%, up from 4.5% in the previous quarter.

The increase was driven by elevated prices of rent, insurance, education, medical, dental, and hospital services.

Rents went up 1.6% in the quarter and remained elevated at 6.7% year-on-year, though analysts noted that the 10% increase in Commonwealth Rent Assistance on 20 September tempered the rent inflation to just 0.1% last month.

"Higher rent assistance will have a larger impact on Q4 data, and we estimate it will subtract 1 percentage point from quarter average rent inflation and 7 basis points from Q4 CPI," Mr Nugent said.

CBA concedes: No cash rate cut this year

The last of the four major banks maintaining a cash rate cut call this year has pulled back from its forecast, following the September CPI print release.

CBA on Wednesday revised its forecast for a December 2024 rate cut to February 2025, in line with the three other big banks that made the call earlier.

"The Q3 2024 trimmed mean was a touch firmer than we anticipated, and as a result, we no longer expect the RBA to commence normalising the cash rate in December 2024," said Gareth Aird, CBA head of Australian Economics.

The economists at Australia's largest bank were quick to note though that their earlier forecast was "explicitly conditional" on the September quarter trimmed mean of 0.7% or less.

This did not materialise, though mystery surrounds Australia's largest bank's economics team as to why they held stubborn for so long. 

"The September quarter 2024 CPI indicated that the disinflation process has continued, but not quite at the pace we anticipated on an underlying basis," Dr Aird added.

CBA now aligns with peers, expecting the cash rate to be lowered to 4.10% when the RBA Board meets on 17-18 February next year.

Read more: Economic News RBA

Bernadette Lunas

Finance Journalist

Bernadette is a journalist with years of experience covering topics in macroeconomics, real estate, and lifestyle beats for notable print media organisations. She joined the InfoChoice Group in 2024, bringing her passion for writing stories that help Australians make better decisions about money.

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