The latest ANZ-Roy Morgan Inflation Expectations index revealed a drop to 4.2% in late February, a significant decrease from January’s 5% and the lowest since August 2021.
After a modest rise in January, the index has trended downward, averaging 4.9% since early 2024.
This decline coincides with broader economic shifts, including the Reserve Bank’s (RBA) decision to cut the official cash rate (OCR) to 4.1%, responding to reduced inflation since 2022 and subdued economic indicators.
Petrol prices, which have remained relatively stable at $1.83 per litre in January, are playing a crucial role in shaping inflation expectations.
Despite starting the month at $1.89 per litre and then dipping to $1.82, prices crept up slightly to approximately $1.86 in late February.
This pricing stability over the past two years, with prices consistently above $1.70 per litre for 127 weeks, continues to exert upward pressure on inflation expectations.
Differences in inflation expectations across Australia were evident in January, with Western Australia recording the highest at 5.4%, followed by Queensland at 5.3%.
This regional variation showed some states experiencing a rise in expectations, while Tasmania saw a significant decrease to 4.8%, the lowest among all states.
The broader economic context showed an official annual consumer price index (CPI) growth rate of 2.4% for the December quarter, which is within RBA’s target range of 2-3%.
This was a pivotal factor behind RBA’s decision to cut interest rates for the first time in over four years this February, aiming to address the tempered inflationary pressures.
Michele Levine (pictured), CEO of Roy Morgan, commented on the latest figures.
“ANZ-Roy Morgan inflation expectations in Australia fell in February and are now at 4.2%, down 0.8% points from the month of January (5%),” Levine said. “The volatility in energy prices, and inflation expectations, shows how sensitive Australians are to changes in the prices of essential everyday goods – like petrol.”
Looking ahead, ABS is scheduled to release the January CPI estimate this week. This forthcoming data will provide further insights into the trajectory of inflation and its implications for monetary policy.
