An important indicator for measuring inflation in Australia declined in November, approaching the target range of the Reserve Bank of Australia, indicating that policymakers may have room to consider easing monetary policy as soon as possible.

The data released by the Australian Bureau of Statistics on Wednesday (January 8th) showed that the closely watched truncated mean of the November core CPI dropped from 3.5% the previous month to 3.2%. This indicator excludes items with high volatility and is the focus of attention for the Reserve Bank of Australia.

After the data was released, the AUD/USD exchange rate fell slightly. The yield of policy sensitive three-year treasury bond also fell, while the benchmark stock index rose. The money market currently believes that there is a 70% chance of a 25 basis point reduction in the benchmark target interest rate from a 13 year high of 4.35% in February, and a rate cut in April is fully expected.

Economists also predict that the next action of the Reserve Bank of Australia will be to cut interest rates, but considering the stickiness of core inflation and the uncertain global context, they have differences on the timing of the rate cut. A complete set of December quarterly price data will be released later this month, which will be an important piece of information for the Reserve Bank of Australia's meeting on February 17-18.

Due to voters' frustration with cost of living pressures and high interest rates, the center left Labour government lags behind in opinion polls, and the latest results will also provide it with some breathing space. Australia needs to hold elections before May 17th.

Finance Minister Jim Chalmers welcomed the decrease in underlying inflation in November on X website.

Since November 2023, the Reserve Bank of Australia has kept interest rates unchanged and has consistently emphasized that aggregate demand still exceeds the economy's supply capacity. The minutes of the December meeting showed that the central bank has more confidence in the continued progress of inflation towards the target level, but it is too early to conclude that this battle has been won.

Members of the central bank's board of directors pointed out that more information on employment, inflation, and consumption, as well as a revised set of staff forecasts, will be released at the February meeting, indicating that next month's assessment may be real-time.