Inflation hits near two-year low, but govt warns fight is 'not over yet'

The monthly consumer price index grew at an annual rate of 4.3 per cent in November, down from 4.9 per cent the previous month and almost half the peak reached in December 2023, according to the Australian Bureau of Statistics.

The last time the monthly CPI was so low was in January 2022.

Treasurer Jim Chalmers said the inflation slowdown was "encouraging".

"[The figures] show that we are making progress ... in this fight against inflation, but the fight against inflation is not over yet," Dr Chalmers said.

"We are coming at this inflation challenge from every angle: competition, migration, infrastructure, the cost-of-living relief that we're rolling out, budget repair, investments in our economy.

"But we know that there's more work to do because people are still under pressure."

The government has flagged the possibility of additional cost-of-living assistance in the May budget.

"We are prepared to consider, in the May budget, any additional help that we could provide in the usual responsible and affordable way," the Treasurer said.

Despite the slowdown, inflation remains well above the Reserve Bank of Australia's 2 to 3 per cent target band, making any move to ease interest rates unlikely in coming months.

While the cost of clothes and household goods has actually shrunk in the past 12 months and prices for other goods like food and fuel is slowing, the Reserve Bank is concerned that inflation in the cost of services will prove to be more stubborn.

Among these is housing, which remains one of the key drivers of inflation. Housing costs jumped 6.6 per cent in November and insurance and financial services were also a major source of price pressure, surging by 8.8 per cent.

Many other services are not included in the monthly inflation data and December quarter figures due out at the end of the January are expected to provide a more accurate guide to price momentum in the economy.

ABS head of price statistics, Michelle Marquardt, said that, excluding volatile items like food, fuel and holiday travel, November's inflation slowdown was more modest, decelerating to 4.8 per cent.

HSBC chief economist Paul Bloxham said the November reading showed that inflation was easing broadly in line with RBA forecasts, supporting the case for interest rates to remain on hold but delaying any prospect of a rate cut until early next year.

The RBA expects the decline in inflation to be gradual and does not forecast it to fall within its target band until late next year.

Mr Bloxham said housing costs, particularly rents, were one of the "stickier" components of inflation and the central bank would feel that "getting it to fall back into its target band, may still prove to be challenging and will take some time".

He predicted that at its February meeting the RBA board would voice ongoing concern about price pressures even though it would leave interest rates untouched.

Betashares chief economist David Bassanese was more optimistic.

Mr Bassanese said the Reserve Bank had "likely finished raising rates" and predicted they would be cut by 0.5 of a percentage point by the end of the year.

Shadow treasurer Angus Taylor said the ABS figures showed the country had one of the world's "most entrenched and persistent inflation problems".

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"[The] data shows [sic] the price of essential items remain too high. Unfortunately, there are no signs that things will get any easier in 2024," Mr Taylor said, accusing the government of "failing policies [that] are only making a bad situation worse".

But Ms Marquardt said the federal government's electricity and rental assistance measures were helping to drag inflation lower.

She said electricity prices have risen by 8.8 per cent since June last year but the increase would have been 19 per cent without government rebates, while government assistance had contained the rise in rents to 7.1 per cent instead of 8.8 per cent.

Dr Chalmers said these results showed that the government's strategy to fight inflation was working.

"It shows clearly the positive impact of the government's policies helping to put downward pressure on inflation," he said.

The statistician said good weather was boosting the supply of meat, fruit and vegetables, helping hold food prices down.