Dip in Australia’s inflation rate in October raises hopes price rises may have peaked

Australia’s inflation rate eased in October, helped by smaller increases for food, adding to expectations that the rate of price rises may be nearing their peak.

The headline consumer price index for last month was 6.9%, slowing from the 7.3% pace reported for September, the Australian Bureau of Statistics said. Some economists, such as CBA, had predicted the October CPI rate to come in at 7.4%.

While fruit and vegetable prices were up 9.4% from a year ago, the pace of the increase was almost half the 17.4% clip recorded for September. With more flood impacts to take their toll, though, food prices may be volatile for some time.

Motorist fuel prices were up 11.8%, quicker than the 10.1% pace in September, but that gain reflected some of the jump in bowser bills after the government decided to let the six-month halving of the fuel excise expire a month ago.

Related: Australia’s economy remains afloat – but there are choppy waters ahead | Greg Jericho

The latest inflation figures carry less weight that the more comprehensive quarterly numbers. Still, the ABS introduced the monthly measures earlier this year to provide a more frequent snapshot of price changes than the four-times-a-year CPI releases that the Reserve Bank and other institutions rely on for their decision-making.

The RBA, which will release its monthly interest rate decision next Tuesday, tends to watch the underlying inflation figures more closely, particularly the trimmed mean gauge that strips out the larger price fluctuations.

Last month, the trimmed mean tally was 5.3%, or less than the CBA’s forecast of 5.7%. It was also lower than the 5.4% pace recorded in September.

David Bassanese, chief economist for Betashares, said the monthly trimmed mean increase at 0.3% was less than the average gain of 0.5% needed if the Reserve Bank’s quarterly forecast of 1.5% was to be reached. It was also the smallest advance since November 2021.

“As a result, the 0.3% October rise represents a pleasing undershoot for the first month of the new quarter,” Bassanese said. “[U]nderlying inflation pressures appear to be cresting.

“The three-monthly moving average of the annualised monthly rise in underlying inflation appears to have peaked at 6% mid-year, and has slipped to 5.2% in October,” he said.

• Sign up for Guardian Australia’s free morning and afternoon email newsletters for your daily news roundup

Bassanese said the results might encourage the RBA to at least pause its rate hike schedule for a few months after next week’s increase.

Prior to Wednesday’s data release, investors were rating as a two-in-three chance that the central bank would lift its cash rate by 25 basis points on 6 December to 3.1%. Such a rise would be a record eight in as many meetings.

The RBA and Treasury expect inflation will peak in the December at about 8% before declining through 2023 as the effect of higher borrowing costs sap demand and some supply constraints ease as Covid disruptions in many countries ease.

Treasurer Jim Chalmers warned inflationary pressures remained.

“While the slight easing in the indicator in October is welcome, we know there are further price pressures that will drive inflation this quarter,” Chalmers said.

“The October result is yet to fully reflect the impact of the floods on grocery prices or the hit to energy bills caused by the war in Europe and the Coalition’s decade of policy chaos.”

Gareth Aird, CBA’s senior economist for Australia, said it was “too early to conclude the annual rate has peaked but the slowdown is the monthly rate of core inflation is encouraging”.

The bank retains its base forecast that the RBA will halt its rate hikes at 3.1%, with some risk it could still go as high at 3.1%. Markets as of yesterday were still betting the cash rate would peak at about 3.8%.

Related: Philip Lowe is the easy fall guy for our economic woes. But maybe we should have listened to him more closely | Peter Hannam

Alan Oster, NAB’s senior Australian economist, agreed that it was too soon to be certain inflation had reached a peak, noting that lots of data points for October were not measured compared with the quarterly surveys.

While the slowdown in the rise in the cost of fruit and vegetables was a good sign, it would probably reverse given the more recent floods.

NAB is sticking with its expectation that the RBA will raise its rates in December and then again in February and March after returning from its January break. “But if the economy slows a la retail sales in October, a pause in February could happen,” Oster said.

Michelle Marquardt, ABS’s head of prices statistics, said that along with fuel, fruit and vegetables, among the biggest contributors to monthly inflation was the cost of building new homes. These rose 20.4% last month, slightly more than the 20% annual pace in September.

“High levels of building construction activity and ongoing shortages of labour and materials contributed to the rise in new dwellings” Marquardt said.

Food and non-alcoholic beverage price gains eased from an annual rise of 9.6% in September to 8.9% last month. Also rising at a slower rate were prices for holiday travel and accommodation prices, with the annual increase in October coming in at 3.7% versus 12.6% in September.

Airfare prices eased as school holidays came to an end and demand lowered for travel to Europe and America during the off-peak tourist season, the ABS said.

In a separate release, the ABS said the number of dwellings approved fell 6% nationally in October.

That was slower than the 8.1% pace of contraction in September. The drop in October was mostly in flats, which were off 11.3%, while private sector house approvals were down 2.2%.

NSW’s total dwelling approvals slumped 18.8%, with Queensland also off 18.7%. Several states posted increases, such a Victoria with 5.8% and South Australia with 17.6%.