Key points
  • Headline inflation rate eased to 3.7% in February, with fuel price shocks not yet reflected in the data. 
  • Trimmed mean held steady at 3.3%, under market expectations. 
  • Electricity, new dwellings, and rents drove housing inflation.
  • Economists warn fuel spikes linked to Middle East conflict will hit in the March CPI. 

The latest ABS consumer price index (CPI) rose 0.2% seasonally adjusted last month bringing the annualised figures to 3.7%, slower than the 3.8% in January. 

Trimmed mean, which is the RBA’s preferred measure, was unchanged at 3.3% in the 12 months to February.

Both headline and trimmed figures were a touch below market consensus of 3.8% and 3.4%, respectively. 

Impacts of fuel prices surges yet to be felt

Economists widely expected inflation to either ease or remain flat in February as the data predates the impact of the ongoing conflict in the Middle East and the ensuing oil price shocks. 

In fact, according to the ABS, automotive fuel prices were 7.2% lower compared to a year ago. 

“Prior to the Middle East conflict, automotive fuel prices fell 3.4% in the month of February, which followed a fall of 3.2% in January,” ABS head of prices statistics Sue-Ellen Luke said.

The effects of the unrest have been felt by consumers in March, mostly through higher automotive fuel prices, which accounts for about 3% of the CPI basket. 

“Fuel prices are expected to fall around 3% month-on-month in February ahead of a more than 25% jump in March,” NAB head of markets research Skye Masters said ahead of today's data being released.

Meanwhile, CBA senior economist Trent Saunders said the effect of the ongoing conflict on fuel prices is expected to see a sharp 31% increase in the CPI measure in March. 

The decline in fuel costs underpin the 0.2% fall in transport prices in the 12 months to February. 

Which prices increased in February?

The bulk of the price pressure in February came from housing, which rose by 7.2%, up from 6.8% in the month prior.

This was followed by a 3.1% rise in food and non-alcoholic beverages and a 4.1% rise in recreation and culture. 

Housing inflation was largely driven by price increases in electricity (up 37%), with most electricity rebates having unwound. 

“The increase in electricity costs over the year is mostly related to households using up the extended Commonwealth Energy Bill Relief Fund (EBRF) and various State Government rebates,” Ms Luke confirmed. 

Excluding both the Commonwealth and State Government electricity rebates over the previous year, electricity prices rose 4.9% in the 12 months to February. 

New dwelling prices were also up (3.7%) as home builders in some cities raise base prices in response to increased demand.

Rent costs also rose 3.8%, reflecting sustained stability in vacancy rates in most capital cities throughout the year.

Overall goods inflation landed at an annual rate of 3.5% in February, while services inflation eased to 3.9%. 

‘RBA may not hike until August’

A bank economist said the slight deceleration in inflation may influence the RBA to consider not hiking interest rates in May. 

“This marginal easing sets a slightly lower baseline ahead of the impending impact of the oil shock driven by the Middle East conflict, suggesting the next RBA hike may not be until August,” Bendigo Bank chief economist David Robertson said.

Major bank economists and majority of traders anticipate the central bank’s policy-setting committee to raise the cash rate in their next meeting in May, a follow-up to the 25-basis point hike this month. 

“The front loading of the two hikes this year, after the five-four vote for the March hike, has prioritised inflation ahead of jobs in the RBA dual-mandate,” Mr Robertson added.

“[That] leaves the next decision at the mercy of more information on labour markets, as well as any signs of de-escalation in the Middle East.”