Inflation in Australia returned to the Reserve Bank of Australia’s (RBA) target range of 2-3% for the first time since March 2021, driven by a substantial decline in energy and fuel prices. The Australian Bureau of Statistics (ABS) announced that the Consumer Price Index (CPI) rose by just 0.2% in the September 2024 quarter, taking annual inflation to 2.8% from 3.8% in June.

Despite the benchmark, a rate cut remains unlikely in the immediate term. Core inflation, as measured by the stripped average, fell to 3.5% annually, pointing to persistent underlying pressures, particularly in services sectors such as rent and childcare. ABS head of price statistics Michelle Marquardt noted: “The 0.2% rise in the September quarter is the slowest since June 2020, mainly due to government energy cuts.” Without these cuts, electricity prices would have increased by 0.7%.

The main contributors to lower inflation included a record 17.3% quarterly drop in electricity prices and a 6.7% drop in auto fuel as government interventions and low oil prices took effect. However, services inflation rose slightly to 4.6%, with rising costs in insurance, rented accommodation and childcare.

Jim Chalmers, the federal treasurer, pointed out that the drop in core inflation showed broader economic relief beyond government cuts. “Our energy cuts are helping, but the underlying pressures in the economy are coming down considerably,” Chalmers noted.

Economists remain divided on the RBA’s next steps. While Deloitte’s Stephen Smith said the data supported the case for rate cuts, others warned the RBA may wait until core inflation trends are more sustainable within the target range. Markets currently see a modest chance of a rate cut by early next year, although February or May 2025 are seen as more likely.