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The Reserve Bank of Australia (RBA) reported a 2.8% annual inflation rate for Q3, marking the lowest in three-and-a-half years, the Australian Bureau of Statistics said.

Compared to Q2, Australia's inflation rate declined one percentage point in the September quarter and broadly aligned with expectations of being between 2-3%. The drop in the inflation rate is being attributed to lower fuel prices and energy bill discounts.

Australia's inflation rate is now at its lowest since June 2020, when the government's free childcare initiative during the pandemic contributed to a decrease, 7 News.

"The [quarterly rise] is the lowest outcome since the June 2020 quarter fall, which occurred during the COVID-19 outbreak and was driven by free childcare," the ABS head of price statistics Michelle Marquardt told ABC News.

Despite the looming threat from continuous price hikes for the majority of goods and services, the total inflation rate managed to remain in order, thanks to significant drops in the cost of electricity and gasoline. The annual rate of goods inflation slipped by half to 1.4% in the September quarter, while the rate of services inflation increased slightly to 4.6%.

The RBA's updated inflation forecasts predicted that the headline inflation rate was expected to drop to 3% by the end of 2024, while added the trimmed mean was expected to remain above the target range at 3.5%.

Markets projected a 30% chance of an interest rate drop by year's end before the Consumer Price Index (CPI) was released. This probability fell to 20% after the CPI announcement, suggesting that monetary policy easing expectations were lowered.

"Underlying inflation and persistent service sector inflation remains a concern and a rate cut this year is highly unlikely," Indeed economist Callam Pickering said.