Reserve Bank governor Michele Bullock has said most Australians are "doing fine" and coping with rapidly rising interest rates, as new inflation data takes some pressure off the RBA to raise them again before Christmas.

Inflation has declined to an annual rate of 4.9 per cent, according to the monthly Consumer Price Indicator (CPI) from the Australian Bureau of Statistics (ABS).

Economists were generally expecting the October inflation figure to be 5.2 per cent, so it has slowed down by more than predicted.

The news has been warmly welcomed by analysts, because the annual rate of inflation had been declining for most of this year before it picked up again in August and September.

The faster-than-expected slowdown in inflation last month will make the Reserve Bank a little more comfortable.

"The breath of relief from the RBA's Martin Place HQ and mortgage holders nationwide was almost audible in the streets of Sydney," Tony Sycamore from IG Australia said.

"[It] effectively rules out the risk of a pre-Christmas interest rate hike from the RBA," said David Bassanese, the chief economist of BetaShares.

AMP's Diana Mousina said the result implied a 0.3 per cent fall in prices last month, although the monthly data excluded many of the local services industries where the Reserve Bank is concerned that price rises are stubbornly high.

"In October, under 65 per cent of components were surveyed which doesn't include many services," she noted.

"The only major 'service' surveyed in October is domestic and international holiday travel and accommodation, which rose by just 1.3 per cent over the year to October."

The ABS said if you take the monthly CPI indicator and exclude volatile items and holiday travel, it shows inflation rose 5.1 per cent over the year to October, down from 5.5 per cent the month before.

And the RBA's preferred measure of annual trimmed mean inflation was 5.3 per cent in October, down slightly from the rise of 5.4 per cent in September.

However, that trimmed mean figure remains well above the Reserve Bank's target of between 2-3 per cent.

The RBA does not expect inflation to return to those levels until late 2025, even after a string of 13 rate rises that has lifted the cash rate target to 4.35 per cent, up from lows of 0.1 per cent as recently as May 2022.

RBA governor says Australian households are overall 'doing fine'

The news comes a day after RBA governor Michele Bullock attended the HKMA-BIS High-Level Conference in Hong Kong, where she spoke as a panellist.

At the conference on Tuesday, Ms Bullock said inflation was still too high in Australia and she was determined to get it down.

But she said Australia's households had managed the RBA's rapid rate rises reasonably well so far, and household balance sheets were in a "good position overall."

 

Reserve Bank Governor Michele Bullock says we're in a period now where the RBA has to be "a little bit careful."(AAP: Darren England)

"We have, like other countries, raised interest rates much more quickly than we have in the past, and that has created, in fact, a lot of political noise and a lot of noise from the general public," she said.

"People are very unhappy. But what I'd like to highlight here is though, despite that noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good."

She said Australian households had built up large savings buffers through the pandemic and those buffers were "largely still intact."

She said housing prices had been rising again too, much to everyone's surprise, and that was helping people feel "a little bit more wealthy."

"Those who are coming off very low fixed rate mortgages, they're managing quite well," she said.

"And all the indications from the banks, and all we hear from the banks, is these households are doing fine."

However, Ms Bullock did acknowledge that the RBA's rapid rate hikes were hitting households very unevenly, which was causing some "challenges."

"There are distributional consequences, and we are dealing with the political economy challenges of the distributional issues associated with raising interest rates," she said.

"So, I think the challenge for us now is really to continue to make sure that we keep pressure on, make sure that we don't let inflation expectations get ahead — they're not at the moment, they're remaining relatively anchored — but the challenge is to do that at the same time as we don't end up with a large increase in unemployment.

"We're in a period now where we have to be a little bit careful.

"We want to make sure that we keep inflation under control … but we also need to make sure we do that in the context of not imposing on the economy too much, and raising the unemployment rate so much."

Some drivers of inflation in October

David Bassanese, chief economist from BetaShares, said October's CPI data followed yesterday's October retail sales report, which showed that retail spending dropped by a larger-than-expected 0.2 per cent last month.

"In the space of two days, therefore, we've received reassuring news that both consumer spending and inflation continue to ease, which should obviate the need for the RBA to dampen Xmas cheer with another rate increase next week," he noted.

According to the ABS's October inflation data, prices for clothing and footwear have now fallen 1.5 per cent over the past year.

The cost of furnishings, household equipment and services has barely budged (+0.4 per cent) over the same period.

In monthly terms, automotive fuel prices fell 2.9 per cent in October, following a rise of 3.3 per cent in September.

Likewise, holiday travel and accommodation prices fell 7 per cent in October, following a rise of 4.3 per cent in September. They are now only 1.3 per cent higher over the past year.

Government subsidies continued to play a significant role in keeping some price increases much lower than they otherwise would be.

Rents fell 0.4 per cent in October, pushing the annual rise down to 6.6 per cent from 7.6 per cent in September.

The ABS said the fall in rents was due to the remaining impact of increased Commonwealth Rent Assistance. Excluding the changes to rent assistance, rents would have risen 0.7 per cent over the month of October.

Electricity prices have risen 8.4 per cent since June 2023, noted the ABS, but would have increased 18.8 per cent over this period excluding the Energy Bill Relief Fund rebates.

However, not all government actions lowered prices.

Tobacco prices increased 10.4 per cent over the past year, mainly due to the 5 per cent annual tobacco excise indexation and biannual Average Weekly Ordinary Time Earnings increase, which were both applied on 1 September.