January Inflation Remains Unchanged at 2.5%

Australia’s consumer price index (CPI) stayed steady at 2.5% year-on-year for a second straight month in January. This was lower than the market estimation of 2.6% but inflation nevertheless remained at its highest level since August 2024. Inflation was driven by higher prices, for food , electricity, alcohol and tobacco.

Core CPI edged up to 2.8% year-on-year from 2.7% in January. Core CPI excludes food and energy items and is considered a more reliable indicator of inflation trends than headline CPI.

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The monthly inflation indicator does not provide the full inflation picture, as the quarterly inflation report is more comprehensive. Still, the January inflation report shows that inflation remains relatively soft and supports the Reserve Bank of Australia’s decision to lower rates by 25 basis points last week, which brought the cash rate down to 4.1%.

RBA Concerned About Inflation Risk, Trump Tariffs

Inflation is within the Reserve Bank of Australia’s (Reserve Bank of Australia) target band of between two and three percent, but the central bank remains concerned about upside risks to inflation. The RBA pressed the rate-cut button last week after maintaining rates for over a year and joined most of the major central banks which are well into their easing cycles. Still, the RBA decision was a “hawkish cut” as the central bank stated it “remains cautious” about the possibility of further cuts. The cautious central bank is trying to dampen hopes for a series of rate cuts during the year and the markets aren’t expecting another rate cut before May.

Central bankers across the globe are worried about US President Trump’s trade policy, specifically the threat of tariffs, which would hurt global growth and boost inflation. The Trump administration has already imposed tariffs on China and has threatened to apply tariffs to other US trading partners. This could lead to another trade war with China which would be very bad news for Australia. China is Australia’s largest trading partner and a slowdown in China would hurt Australia’s key export sector.

Australian Dollar Shrugs, Stock Market Dips but Recovers H2

The AUD/USD currency pair is showing little reaction to today’s inflation report. In the European session, the Australian dollar is trading at 0.6348, down 0.23%.

The benchmark Australian index, the S&P/ASX 200, fell as much as 0.48% in the Asian session but recovered and closed the day at 8240.70, down 11.20 points (0.14%).

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