Australian Inflation Rate: Will It Drop Below 3% In 2024?


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Last updated: February 21st, 2024

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Last updated: February 21st, 2024

Reading Time: 9 minutes

Despite inflation slowing faster than expected on the back of 13 interest rate rises from the Reserve Bank of Australia (RBA) across 2022-23 in the pursuit of its 2-3% goal, Australia’s inflation remains sticky.

December 2023 quarter (Q4) results released in January 2024 revealed the Consumer Price Index (CPI) rose 0.6%, representing an annual increase of 4.1%.

It’s a far cry from the peak of 7.8% seen in December 2022, and the first time headline inflation has dropped back below the 5% mark since Q4 2021. 

Yet, cost of living pressures remain high, and in the face of a volatile global economic outlook—nobody expects an immediate dovish response from the RBA, which is due to meet next on February 6.

But what do leading economists say about the odds of inflation rising again, or declining further, in 2024?

Above: Analysis from PinPoint Macro Analytics shows Australia isn’t alone in experiencing inflation growth well above the pre-Covid average.

Australian Inflation Rate Remains Stubbornly High.

While Aussies are paying less for the basics, they’re still paying too much. Spending on non-discretionary items is still outpacing our ability to splurge.

Inflation in what’s known as ‘non-tradeables’—things like housing, rent, insurance and electricity—remains elevated at 5.4%.

A survey of global economists by Bloomberg found they predicted the stubborn and unique inflation challenges in Australia would result in:

  • Rate cuts from the RBA being delayed until the final quarter of 2024, with rates on hold until inflation gets closer to 3%.
  • Rates declining twice, taking the cash rate to 3.85% by the end of 2024.

Australia’s inflation and rate cycle is lagging behind those of other major economies, particularly the US.

The US Federal Reserve lifted its cash rate higher in a shorter time span—and is expected to start easing much sooner (i.e., March) as well.

This is despite US CPI still being above target, at 3.4%.

The Wall Street Journal reported the personal consumption expenditures (PCE) price index was the Fed’s favoured inflation gauge. 

And with the PCE at 2.6% compared to the policy rate of 5.25-5.5%, WSJ’s Nick Timiraos argues that cutting rates would still leave them in the “restrictive” zone.

What Is The Australian Government’s Prediction?

In its recent Mid-Year Economic and Fiscal Outlook (MYEFO) released in December 2023, the Australian Government revised its expectations for inflation levels in Q2 2024.

“In the near term, higher global oil prices and the continued pass-through of cost pressures will apply upward pressure to headline inflation, which has been revised up to 3¾ per cent through the year to the June quarter 2024.”

Treasury also forecast that inflation would return to the target range (2.75%) by mid-2025.

(Related: What Is The Cost Of Living In Australia?)

The latest CPI figures came in below the RBA’s forecast that CPI would decline to 4.5% for the December 2023 quarter.

RBA predicts a further decline to 3.5% by December this year, but thinks inflation won’t hit the target territory (3%) until December 2025.

Above: The RBA remains ready to hoist interest rates if significant price rises continue.

Despite below-trend GDP growth predicted in the coming year, both Commbank and Westpac believe the RBA won’t need to tighten rates further to quell inflation.


Westpac’s Lucy Ellis said the Labor Government’s slated changes to stage 3 tax cuts – which will give a larger number of lower-income earners a tax break – would have a marginal macroeconomic impact.

The potential stimulatory effects of extra cash are offset by the financial squeeze most Australian households are under and falling real incomes.

Ellis said:

“We do not expect that this will affect the RBA’s view of the inflation outlook or the future path of the cash rate.”

In a January 2024 economic insight, Commbank said slowing consumer demand and a broader slowdown in economic activity support rate cuts from the RBA in 2024.

“More specifically, we think the RBA will need to cut the cash rate even with inflation still above the target band to avoid the unemployment rate from lifting materially above 4.5%.”

Until then, Commbank expects RBA’s tightening bias to remain in place until its convinced of inflation’s downwards trajectory, stating:

“Maintaining a tightening bias also allows the RBA to ‘jawbone’ the household sector to elicit a greater behavioural response to the already delivered rate increases.”

Predictions for the CPI headline rate in 2024 from the banks include:

Bank2024 Q22024 Q4
4.0% annual change
3.2% annual change
3.9% annual change
3.1% annual change
CommBank3.0% annual change
ING4.1% annual change3.8% annual change

Factors That Can Cause Inflation To Persist.

Don’t forget that you can look at the Australian economy in one of two ways:

  • Close-up. Consider interest rate rises, inflation data, food prices, unemployment rate, etc.
  • Big picture. Study geopolitical issues, long-term trends and historical patterns.

Both are important. But in times of stress, humans overestimate the impact of the former and overlook the indirect (yet powerful) impacts of the latter.

The following micro and macro issues could have an impact in 2024:

1. Geopolitical Turmoil.

Further slowing of growth in the Chinese economy and ongoing conflicts in Russia/Ukraine and the Middle East are of concern.

Expert Tip.

Market shocks could also arise from upheaval caused by changing governments, as the US, UK and India all head to the polls this year.

Tensions flared by the Israeli-Palestinian conflict — which prompted Yemeni Houthi rebels to start attacking trade ships passing through the Red Sea — threatens to ramp up the Yemeni civil war.

When commodity sources and vital supply routes are disrupted, prices tend to increase.

2. Rising Employment And Wages.

The Australian job market was on fire in 2023, with the lowest unemployment in history and a 7.1% rise in labour costs (the fastest rise in any other advanced economy).

The seasonally-adjusted unemployment rate remained at a low 3.9% in the latest jobs figures released in January 2024.

However, the participation rate and employment-to-population ratio both decreased—indicative of an expected softening of the labour market in 2024.

Still, employment has been resilient.

Expert Tip.

Combined with rising real wages, it gives people more money to spend, increasing demand for goods and services and the impetus for corporations to lift prices.

3. Government Spending. 

Fiscal policies impact on how consumers and businesses make financial decisions — which is why major government infrastructure projects, investments, subsidies and stimulus come under close scrutiny.

Despite the recent political brouhaha around the revised stage 3 tax cuts, Treasury estimates they will add a measly 0.1% to inflation.  

Big builds can spill over into inflation by heating up demand for materials and labour.

Despite Canberra’s attempts to rein in the public infrastructure spending boom, these efforts will do little to prevent further rate rises.

4. High Migration Levels. 

Albanese’s government is facing heat after Australia’s migration boom dwarfed treasury forecasts, with 300,000 people arriving in 2023.

Returning foreign students added to the demand, driving up services inflation and rent prices.

Australia’s rental market is still tight, resulting in rental price inflation rising 7.3% annually according to the latest CPI numbers.

It would have been a 2.2% increase in Q4 2023 alone without the availability of subsidies through the Commonwealth Rent Assistance (CRA) program.

Above: Some of the most significant price rises occurred in the rental market.

What Is The History Of Inflation Rates In Australia?

Australia saw a number of spikes in the inflation rate in the 70s, 80s and 90s.

The RBA adopted the 2-3% inflation target in the early 1990s, with cash rate changes as the primary tool to stimulate or dampen economic activity and keep inflation stable.

After tracking within the target range since around the start of the 2000s, inflation reduced significantly in 2020 as a result of COVID-19 lockdown measures.

Pent-up demand from that period was cited as a major cause of skyrocketing inflation as pandemic restrictions eased.

Australia’s inflation rate hit a 22-year peak in December 2022, reaching 7.8%.

Above: Consumer price index averages can obscure price movements in different parts of the economy. Services inflation is still high, while food inflation is falling. Fruit and vegetable prices have recorded the biggest falls.

How Does Australia’s CPI Compare Globally?

Australia’s inflation rate is one of the worst among advanced economies.

While many countries — the US and UK included — have experienced rising inflation of late, there’s evidence that inflation is easing more quickly elsewhere.

Above: The Economist coined a measure of “inflation entrenchment”, a statistic used to demonstrate the stickiness of inflation. Australia is leading the pack, likely due to some of the most generous pandemic stimulus measures.

In its Interim Report released September 2023 titled Confronting Inflation and Low Growth, the OECD said that while inflation was well above central bank targets in almost all G20 economies, core inflation was beginning to decline at a moderate pace.

However, services inflation was persistent and was set to remain so. It’s driven by labour costs, energy prices and the “sizeable weight of housing rental prices” in some countries (particularly the US).

Did You Know?

The OECD predicted global growth to dip in 2024, with most advanced economies being held back by a tightening bias needed to rein in inflation — but said risks remain tilted to the downside.

In particular, a key risk is whether hawkish monetary policy delivered so far will be sufficient to slow inflation down to target levels.

“Persisting cost pressures or renewed signs of an upward drift in inflation expectations would compel central banks to keep policy rates higher for longer than expected and potentially expose financial vulnerabilities in the balance sheets of financial institutions,” according to the OECD.


These could trigger an abrupt reassessment of liquidity, duration and credit risks.

Above: Projected inflation rates for 2024 (Australia, Eurozone, UK, US, Canada & Japan).

Frequently Asked Questions About Australian Inflation Rate.

If you find macro- and microeconomic concepts difficult to wrap your head around, you’re not alone. Get up to speed with my definitions below.

Headline Consumer Price Index vs Underlying CPI: What’s The Difference?

Headline and underlying CPI are two different ways to interpret the price change data collected by the ABS.

  • Headline inflation describes the overall quarterly and year-over-year change in goods and services prices, based on the entire basket of items the ABS uses to calculate price changes. This can be distorted by Black Swan events (e.g., when flooding hurt veggie producers, causing a spike in the price of humble lettuce).
  • Underlying inflation is based on analytical measures of the CPI, intended to omit or smooth over quarterly price volatility. Underlying inflation calculations provided by the ABS include the Trimmed mean and Weighted median.

Another way CPI is analysed is the ‘Seasonally adjusted’ figure that accounts for regular seasonal price movements, such as an increase in the price of education in March each year.

The measure spreads out the impact of ‘seasonal’ pricing over the year.

Inflation is currently slightly higher based on the Trimmed mean, at 4.2%.

Above: Consumer Price Index vs Trimmed Mean.

How Is The Consumer Price Index (CPI) Calculated?

Staff from the ABS investigate current prices on a fixed ‘basket’ of things that an Australian household would typically spend their money on, like groceries, housing, transport, healthcare, entertainment, and utilities (around 1 million prices are collected every quarter).

They calculate the price change from the previous quarter in aggregate to determine an overall inflation rate.

  • The ABS also publishes price changes across various groupings of goods and services — as some areas contribute more significantly to headline inflation.
  • For example, in the 12 months to the December 2023 quarter, insurance prices rose 16.2%, the highest  annual rise since March 2012.

What Is Inflation?

Inflation is a consistent, economically significant price rise across the economy.

Practical Example.

If the average price of insurance and financial services rose by $1,000 across the country, that would be considered inflation. If the price of these services rose in a single city, it would not be considered inflation.

Most often, inflation is caused by an imbalance in the supply and demand of money.

Why Is Inflation Dangerous?

Inflation can become a self-sustaining cycle. History is full of examples where out-of-control inflation brought relatively strong economies to their knees.

  • Higher prices encourage workers to demand higher pay.
  • Higher pay translates into higher overheads for businesses.
  • Businesses charge higher prices to maintain profitability.

Higher prices make goods and services less affordable to everyday people, who demand higher wages again.

What Caused The Latest Spike In Australia’s Inflation?

During lockdowns, the Australian government rolled out one of the most generous stimulus packages in the world.

Fuelled by what’s known as quantitative easing (aka “printing more money), the program increased the supply of money and loosened lending criteria to keep businesses (and people) afloat.

Can Inflation Lead To A Recession?

Yes. Rises in inflation, combined with interest rate rises, can force people to spend less while encouraging businesses to lay off employees. Unemployed people are less likely to buy goods and services, accelerating the downturn.

Did You Know?

The definition of ‘recession is two consecutive quarters of negative GDP growth.

Final Words On Rising Inflation Rate In Australia.

While there’s always a risk that prices will continue to surge, most experts agree Australia’s inflation rate will trend downward in 2024.

It’s expected that fewer supply constraints and reduced consumer spending — due to Aussies feeling the impact of cost of living — will both reduce underlying price pressures.

But nobody knows for sure whether the monetary policy tightening we’ve already seen — with the cash rate now at 4.35% — will slow down spending enough and how the chips will fall in relation to other macroeconomic factors like global supply, GDP growth and unemployment.


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