The monthly indicator for the Consumer Price Index, published by the ABS, showed a further moderation in inflation to 4.9% from 5.6% in September. 

From September to October, the index actually experienced a slight deflation in original terms, down from 121.4 to 121.0.

After this release, CommBank economist Stephen Wu said inflation could be in the 3% range by end of year.

"There will be further substantial easing in the annual rate of inflation over the rest of the year. There is a real chance that inflation prints with a 3‑handle by December," Mr Wu said.

That would be well-ahead of the RBA's forecast of 4.5% by the end of the year.

However as the ABS notes, fuel prices, boosted rent assistance and energy bill relief are clouding the index's clarity.

“Electricity prices have risen 8.4% since June 2023. Excluding the rebates, Electricity prices would have increased 18.8% over this period,” said Leigh Merrington, ABS' acting head of prices statistics.

Automotive fuel prices were 8.6% in October compared to 12 months ago, down from the annual increase of 19.7% in September.

While this can be explained by higher oil prices and petrol price cycles, Mr Merrington also explained another reason.

"The reinstatement of the full fuel excise tax to 46 cents per litre on 30 September 2022 contributed to the annual increase to September 2023 but not to October 2023. This, combined with a monthly fall of 2.9% has reduced the annual rise for Automotive fuel," he said.

Westpac economist Justin Smirk also added some thoughts on rent.

"We estimate that non-assisted rents rose 0.9% in September, matching the 0.9% increase in June which was the largest monthly increase in monthly rental series," Mr Smirk said.

In trimmed mean terms - a calculation with short-term price swings taken out - the annualised rate was 5.3%, down slightly from 5.4% the month prior.

Something to cheer about? 

NAB senior economist Taylor Nugent highlighted the effect government policies are having on the headline rate.

"Government policy impacts were also prevalent throughout the data. An increase to rent assistance mean rents fell 0.4% month on month," Mr Nugent said.

"Without it, they would have increased 0.7% month on month, showing no deceleration from recent pace, but that does set up a temporarily lower rent contribution in the fourth quarter CPI."

At a panel participation in Hong Kong yesterday, former RBA governor Dr Philip Lowe warned participants about the counterproductive effects of handouts such as bill relief.

“I’m seeing in a lot of countries governments say well ... that’s very difficult, let me help you out. That tends to lead to inflation as well,” Dr Lowe said.

Earlier this year, current RBA governor Michele Bullock said the government budget is broadly neutral; it's due to to provide its mid-year budget update in December.

The monthly indicator for October also only included about a third of the items in the quarterly release, according to CBA economist Stephen Wu.

"Just over one‑third of the CPI basket was imputed in October. These imputed items are assumed to have no price change in the month. Many of these are market services, which is where the RBA’s concerns on the inflation front are skewed," Mr Wu said.

"The RBA Governor’s concerns around services inflation as noted in her recent speech – particularly prices at hairdressers and dentists, dining out, sporting and other recreational activities won’t see price updates until later in the quarter."

Retail sales released yesterday also suggested many consumers "pressed pause" on spending in October, in anticipation of Black Friday sales in November, which could weigh on the consumer price index. 

"Goods disinflation was apparent across a range of the CPI basket. Within the household furnishings, textiles and equipment group (‑1.6%/mth), household textiles (‑5.3%), furniture (‑4.2%), and major household appliances (‑3.1%) experienced large price declines," Mr Wu said.

"These are much larger price falls than usual fourth-quarter seasonal patterns, and unwinds some (but not all) of the earlier pandemic price increases."

The RBA was also "mugged by reality" after the quarterly inflation release for September came out higher than expected.

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