Australia nowcast shows inflation fading as once-hawkish central bank finally cuts

For quite a long time, the Reserve Bank of Australia had been one of the world's more hawkish central banks. It remained concerned about stubborn inflation even as global counterparts started their pivot to easing.

But the RBA finally cut interest rates for the first time since November 2020 this month – lowering its cash rate by 25 basis points to 4.1%. While indicating this was justified by lower price and wage pressures, the RBA still expressed some concern about inflation risk, with several labor indicators coming in stronger than expected.

CEIC's weekly inflation nowcast supports the RBA's move: our proprietary, machine learning- driven model projects that headline inflation slowed in January. (The official data will be released as late as Feb. 26.)

Our nowcast sees price growth at 2.35% in January, down from 2.45% in December. That would be the first slowdown after three consecutive months of acceleration.

The RBA's preferred measure for underlying price growth is "trimmed mean" inflation, which has been slowing more than expected for some time – prompting the central bank to cut even with those accelerating headline numbers. The trimmed mean metric excludes whichever items in a given month had the most extreme moves; it slowed to 2.7% in December, as our second chart shows – the lowest rate since 2021.

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