EDITORIAL: Falling inflation is welcome, but the war isn’t over yet

It’s the news we’ve been waiting for since early 2022.

Our headline inflation figure finally has a 2 in front of it.

Figures from the Australian Bureau of Statistics out on Wednesday showed that annual headline inflation for the September quarter fell to 2.8 per cent, down from 3.8 per cent in the June quarter.

That puts it back within the RBA’s target band of between 2 and 3 per cent needed by the Reserve Bank to justify a long-awaited cut to the cash rate.

So does that mean that all mortgage holders can expect to be backing a winner after next week’s Melbourne Cup Day RBA meeting?

Hold your horses. It’s a little more complicated than that.

The headline figure is a bit of a sham.

Trimmed mean inflation, which strips out volatile price changes and is the RBA’s preferred inflation metric, remains well outside the target band at 3.5 per cent. The sharp drop in the headline inflation figure was largely to do with one-off generous electricity rebates from Federal and State governments. While households have welcomed them, they won’t do anything to address longer-term drivers of inflation.

In other words, it’s all a bit of fakery.

But, the entire economy is built on a bit of fakery and a lot of magical thinking.

While the RBA won’t be taken in by Wednesday’s headline, it’s still good news and will inspire confidence in the economy, which could encourage continued momentum.

Westpac and ANZ both say they expect the RBA to hold rates steady at next week’s meeting. But Aussie borrowers could get a rate cut in February if things continue at their current trajectory.

Predictably, Treasurer Jim Chalmers was keen to talk up the figures.

“Today’s numbers show we are on track and on target for a soft landing in our economy,” he said.

“We are confident but not complacent about the progress that we are making.”

He’ll hope that the improving inflation figures help change the narrative by inspiring some optimism around the Australian economy.

That might do a little in pushing the figure that matters — trimmed mean inflation — in the right direction.

Certainly, it’s a much more buoyant outlook than that provided by the International Monetary Fund earlier this month. Their 2025 forecasts had Australia’s inflation rate at 3.6 per cent. Only Slovakia was projected to do worse.

That said, all the optimism in the world doesn’t mask the fact that there are plenty of Australians who continue to do it tough.

Inflation has slowed, and that’s a good thing. But prices are continuing to rise, and thanks to our protracted inflation cycle, they’re doing so off a much higher base.

For almost all Australians, the cost of living remains the No.1 concern. Their votes at the next election will go to the party they trust in to address it.

Dr Chalmers is making the pitch that they should put that trust in Labor. If inflation continues to fall, they might start buying it.