(Bloomberg) -- Australia’s monthly inflation gauge snapped two months of acceleration in October, bolstering the case for the Reserve Bank to resume pausing interest rates next week.

The consumer price indicator rose 4.9% from a year earlier, the first reading for the fourth quarter and lower than economists’ estimate of 5.2%, Australian Bureau of Statistics data showed Wednesday.

The RBA raised rates earlier this month as inflation has proved sticky and the economy and labor market show more resilience than anticipated. The cash rate currently stands at 4.35%, a 12-year high.

The yield on the policy-sensitive three-year bonds fell following the data as traders trimmed bets that the RBA will move again sometime next year. Swaps are pricing about a 50% chance of a hike in 2024, down from about 70% beforehand. 

Wednesday’s report showed that when excluding volatile items, annual inflation eased to 5.1% from 5.5%.

What Bloomberg Economics Says

“The surprisingly sharp slowdown in October inflation could spell the end of the RBA’s rate-hiking cycle.”

“The central bank is likely to maintain a hawkish stance at its next meeting on Dec. 5 in order to keep sustained pressure on inflation expectations.”

— James McIntyre, economist.

For the full note, click here

The release comes as inflation gauges in the US and euro zone are set to show the smallest annual increases since early or mid-2021, reinforcing sentiment that rates in those jurisdictions won’t be raised again.

Today’s report is one of the last major pieces of data that RBA Governor Michele Bullock will see before the policy meeting on Tuesday, when the central bank’s board is expected to hold rates steady. 

Helping to support spending and prices, Australia’s labor market remains tight with hiring staying strong and the jobless rate holding in a 3.4-3.7% range since June last year.

Today’s quarterly CPI report also showed:

  • The most significant contributors to inflation were housing, up 6.1%, food and non-alcoholic beverages, 5.3% higher, and transport up 5.9%
  • Automotive fuel prices were 8.6% higher, slowing from 19.7% in September

--With assistance from Tomoko Sato, Matthew Burgess, Garfield Reynolds and Georgina McKay.

(Adds comment from Bloomberg Economics.)

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