Australia’s inflation rate held steady at 2.5% for the year ending January 2025, matching December’s reading and coming in just below what economists expected.
The trimmed mean measure of core inflation ticked up slightly to 2.8% in January from 2.7% in December, suggesting persistent underlying price pressures despite remaining within the Reserve Bank of Australia’s (RBA) target band.
A closer look at the report showed that:
- Food prices rose 3.3% compared to last year
- Housing costs increased 2.1%
- Alcohol and tobacco jumped 6.4%
- Electricity prices fell significantly (-11.5%) thanks to government rebates
- Rent increases are slowing down (5.8%, down from 6.2%)
- Fruit and vegetable prices increased 7.0%
- Home building costs are rising more slowly than before
- Gasoline prices dropped 1.9% over the year
Link to the ABS Consumer Price Index Report (January 2025)
Despite the inflation reading coming in at 2.5% as expected and sitting at the midpoint of the RBA’s target range, AUD traders appeared to focus on the slight uptick in core inflation measures, which tempered hopes for imminent rate cuts.
Market Reaction
Australian Dollar vs. Major Currencies: 5-min
Overlay of AUD vs. Major Currencies Chart by TradingView
The Australian dollar started off on the back foot and took a sharp dive when the headline CPI met expectations.
After the initial selloff, the Aussie found slightly more solid footing, clawing back some losses but staying below pre-announcement levels. The market’s tempered reaction signaled that, while the inflation data is encouraging, it may not quite be enough to shift the RBA’s relatively less dovish policy outlook.
Even so, AUD couldn’t hold onto gains for long. It slid back to its intraday lows and now looks ready to test fresh lows as the risk-off vibes from Tuesday’s U.S. session spill over into Wednesday’s Asian session trading.
