Författare: John Hawkins Senior Lecturer Canberra School of Politics Eco

Australia’s headline inflation rate dropped to a three-year low of 2.4% in the December quarter, according to the Consumer Price Index, adding to pressure for an interest rate cut by the Reserve Bank as soon as next month.

Since it peaked at 7.8% in December 2022, inflation has now fallen for seven out of eight quarters.

The closely watched core inflation measure dropped sharply to 3.2% from 3.6%, below market expectations, but the central bank is concerned about how sustainable the fall in inflation will be. Strength in the labour market is also weighing against the need for a cut in interest rates.

The long-running quarterly measure of the CPI is a better indicator than the more volatile monthly version. But the monthly rate is currently very similar; it ended the year at 2.5%.

Why did inflation fall?

A main reason headline inflation fell was the electricity rebates, which led to the price of electricity falling by 25.2% during 2024.

The fall in global oil prices, which led to petrol prices dropping 7.9% during 2024, also contributed to the decline in inflation.

The rental market is easing, with rents slowing from growth of 7.3% during 2023 to 6.4% during 2024. Increases in Commonwealth Rent Assistance contributed to the deceleration. This still leaves a lot of families facing rental stress.

Home builders offering discounts have moderated the “new dwellings” component of the CPI. It increased by only 2.9% during 2024, a marked deceleration from the growth rates of around 20% seen in 2022.

Urban transport fares also fell during 2024.

Working against the downward trend were increases to the tobacco excise, in addition to the standard indexation, which led to tobacco prices rising by 12.2% during 2024.

Insurance costs continue to rise, increasing by 11% during 2024. If the Californian fires lead to insurers revising up their assessment of the risks posed by climate change, insurance premia could rise further.

The decline in the Australian dollar, while not as alarming as some media reports would suggest, would have added to the price of some goods, particularly those imported from the United States or whose price is denominated in US dollars.

Read more:
The Australian dollar has hit a 5 year low. Sounds bad but don’t panic

The decline in inflation may be a pleasant surprise to the half of voters who were expecting inflation to get worse.

The “underlying” rate of inflation, which looks through temporary measures such as the electricity subsidies and is the preferred measure of the central bank, has also declined. It is now 3.2%.

Australia’s inflation performance is similar to that in comparable countries. It is slightly lower than inflation in the United Kingdom (2.5%) and the same as in the euro area. It is higher than in New Zealand (2.2%) and Canada (1.8%).

The fall in inflation to a rate significantly below the 3.5% at which wages are increasing means that the cost of living crisis is abating, although not yet over.

The quarterly increases in the CPI during 2024 were 1.0% in March and June and 0.2% in September and December. As the large increases in the first half of 2024 are replaced, the annual rate should drop further in coming quarters.

What does it mean for interest rates?

The current Reserve Bank board meets next on February 18. By the following meeting, on April 1, the decisions will be taken by the new monetary policy board, which will have two new members.

Read more:
The Reserve Bank will now have a separate board just to set interest rates. Here’s why that’s significant

This is the second consecutive quarter that inflation has been within the Reserve Bank’s medium-term target band of 2–3%. It is now just below the mid-point of the band.

Inflation is also below the Bank’s latest forecasts of 2.6% (and 3.4% for the “underlying” rate).

But the bank has stated it will only cut interest rates when “members are confident that inflation is moving sustainably towards target”.

Inflation that is low just because of temporary electricity subsidies may not be regarded as ‘sustainable’. That is why the Bank places more emphasis on the underlying inflation measure. While not yet within the target band, underlying inflation has been steadily heading there and is now only just above it. This may be enough to give the Bank board members the confidence they seek. Financial markets now think so.

The government would dearly like to see rates coming down before the election, likely to be in April or May. It faces a nervous wait. Läs mer…

Freshly elected US president Donald Trump has exercised his usual degree of modesty and named his newly launched cryptocurrency or memecoin, $Trump.

And like the man himself, the coin’s price is extraordinarily volatile. The price ran up to US$75, fell below $60, went back to $75, fell below $40, then rose back to $60 and had fallen to $31 at the time of writing. And this was just in two days.

It has now been joined by a $Melania coin, promoted by his wife.

Donald Trump was not a success at running businesses. His wealth was mostly due to what he was given by his father.

Read more:
A new book reveals much of Trump’s success is based on a myth he is a self-made billionaire

But he may now have found a way of monetising his fame. Ironically it is using a cryptocurrency, the leading example of which he has described as a “scam”.

Even by Trump standards, it is quite extraordinary that an incoming president would create such a large conflict of interest days before assuming office.

What are memecoins?

While the first cryptocurrency, Bitcoin, has failed in this goal, it was at least created with the idea that it would have a use as a payments instrument.

Read more:
Almost no one uses Bitcoin as currency, new data proves. It’s actually more like gambling

Memecoins by contrast do not even pretend to have any potential use. They are purely speculative tokens.

Probably the best known memecoin is Dogecoin. It was originally created as a joke. Its Australian co-creator described it as a “piss take”.

But supportive tweets by Elon Musk, who once called it the “people’s crypto” have led to spurts in its price. DOGE is even the acronym of the agency Musk will be running for Trump; the Department Of Government Efficiency. In 2021 its price went from less than 1 US cent to almost 60 cents. It is now 35 cents.

The 100 largest cryptocurrencies include memecoins such as Shiba Inu (named after the dog breed featured on the Doge internet meme), Pepe (named after a cartoon frog), Bonk, Fartcoin and Floki (named after Musk’s dog).

Many memecoins are part of “pump and dump” schemes. These involve the coin creators talking them up and then quickly selling, leaving the buyers with worthless coins.

What does “market capitalisation” mean?

You may have seen claims that $Trump is “worth” around US$7 billion, Fartcoin US$2 billion and $Melania around US$1 billion. What does this actually mean?

Melania’s meme coin was launched on Melania Trump’s X account.
The Conversation, CC BY-SA

It is a reference to the so-called market capitalisation. $Trump’s peaked at US$15 billion, but is currently US$7 billion. To put the US$8 billion drop into context, it is equivalent to around half the value of large Australian companies like Coles and Santos.

These reported market capitalisations need to be interpreted with some caution.

They are calculated analogously with those for shares of listed companies. So, for example, Australia’s largest company, the Commonwealth Bank, currently has around 1.7 billion shares on issue and they are trading at around A$150 so the market capitalisation is around A$250 billion.

But that does not mean if every shareholder wanted to sell today they would collectively get A$250 billion. Once a large number of shareholders start selling, the share price would drop by a lot. Only the first sellers would achieve the current price.

At least there is a very large and liquid market for listed shares in large companies. They have a fundamental basis in solid profits they have earned and they have a balance sheet with assets. This is not the case with memecoins, which neither make profits nor have any underlying assets.

Furthermore, unlike a large traded company, creating a new coin is not that difficult. A 13-year-old child reportedly made A$46,000 by creating one.

But if you create 100 million coins, and I buy one for $10, does this really mean your coin is worth $1 billion?

Buyer beware

$Trump’s own website includes a disclaimer noting $Trump is not “an investment opportunity” nor “a security”.

If you are thinking about gambling on it, don’t say you were not warned. Läs mer…