The rate of inflation halved over the last few months of last year, making it all but certain that the Reserve Bank will keep interest rates on hold when it meets next week.
Consumer prices rose just 0.6 per cent over the December quarter and 4.1 per cent over the past year.
The Australian Bureau of Statistics (ABS) noted that this is the smallest quarterly rise since March 2021, and annual inflation had fallen from a peak of 7.8 per cent a year ago.
The quarterly inflation rate has halved from September's 1.2 per cent.
The official data came in below economist expectations for a quarterly reading of 0.8 per cent and an annual reading of 4.3.
Moreover, the Reserve Bank's preferred "trimmed mean" measure of inflation, which excludes the most volatile price moves, also came in below expectations at 0.8 and 4.2 per cent for the quarter and year, respectively.
"We suspect any lingering concerns about the stickiness of underlying inflation will dissipate before long," noted Abhijit Surya from Capital Economics.
"After all, our composite measure of output prices suggest that trimmed mean inflation will fall to around 3.5 per cent by mid-year."
Analysts say Wednesday's data makes further interest rate rises look very unlikely.
"The lower-than-expected December quarter consumer price index result should effectively kill off any lingering chance of an RBA rate hike next week," argued Betashares chief economist David Bassanese.
Wednesday's numbers saw markets price in the very slim possibility of a cut at the RBA's first meeting of 2024, to be held next Tuesday, although such a shock move is not expected by any economists.
"While today's release won't move the dial in the lead-up to next week's RBA board meeting, expected to see the cash rate kept on hold at 4.35 per cent, it does reinforce expectations of RBA rate cuts in the second half of 2024," noted IG's Tony Sycamore.
Mr Surya expects rate cuts to start even earlier, in May.
Financial markets are now pricing in at least one rate cut by August and at least two by the end of the year, which is in line with what many economists are expecting.
Loading...Housing and insurance drive price rises
Rebecca and Ash are both workers at a pet treat manufacturer in Melbourne's south.
Both of them are single mothers, with three children each, who currently rent.
"The rise in rental is just insane these days, especially being a single mum, it's very hard," Ash said.
"[About a month ago] my rent went from about $430 to $490 a week."
Ash said it was pointless to consider finding somewhere else to live.
"There's no point moving because it's expensive everywhere."
The ABS figures back that up.
Rents were up 0.9 per cent for the quarter, but would have been 2.2 per cent higher had it not been for an increase in Commonwealth Rent Assistance — an increase that many renters see no benefit from.
Over the past year, rents have jumped 7.3 per cent, only slightly lower than the 7.6 per cent rise over the year to September.
For those building a home, there was bad news with the cost of residential construction rising 1.5 per cent in the quarter, slightly higher than in the three months to September.
"Higher labour and material costs contributed to price rises this quarter for construction of new dwellings," noted Michelle Marquardt from the ABS.
Rebecca says she has already cut back dramatically on any non-essential expenses to keep a roof over her family's heads.
"I find it's just bare necessities," she said.
"The kids obviously aren't doing sports at the moment, you're cutting down on groceries, cutting down on fun activities — you find as many free activities as you can, take them down to the park."
"We live on chicken 'cause [red] meat is too expensive," Ash added.
That falling demand, increased supply and decisions by the major supermarkets to pass on some of the falling farmgate costs of beef and lamb saw prices of those meats fall 4.5 and 15 per cent respectively over the past year, with most of that over the last few months of 2023.
On the flip side, chicken, pork and seafood prices rose as consumers substituted them into their diets.
But there are some expenses Rebecca and Ash simply cannot avoid.
"I have quite an expensive car to run," Rebecca lamented.
"So I am putting in $80 to $90 every few days for my car to run. That's not enjoyable at all."
While fuel prices eased 0.2 per cent over the December quarter, the ABS noted they were volatile, with the average capital city price ranging from $2.13 in early October to $1.78 per litre in mid-December.
Insurance premiums for cars, houses and home contents have also been a major rising cost.
The ABS data show they jumped 16.2 per cent over the 12 months to December, the biggest annual rise since March 2001, which would have been pushed higher by the introduction of the GST.
Ash has been trying to minimise her family's use of increasingly expensive electricity and gas.
"We always have to make sure everything is turned off at the power wall," she explained.
"No lights on, turn the lights off. My kids are bad with that.
"Gas, especially, has been really bad. That's gone up heaps."
The ABS said electricity prices had risen 5.7 per cent since July 1, although they would have gone up 17.6 per cent without the joint federal and state Energy Bill Relief rebates.
Businesses struggling to pass on costs
Bec and Ash's employer, Wagalot, said it is also battling rising costs, along with increasing pressure to keep prices down.
It last raised prices about nine months ago due to inflationary pressures, such as rising wheat and delivery costs.
"The price points for treats has jumped from $5 to $7, or from $10 to $12 or $15," Wagalot's director, Alice Needham, said.
"And that's now what people are expecting to see and pay."
However, Ms Needham said the major pet food chains that stock Wagalot have been pushing back on further price rises.
"Especially the bigger groups of retailers," she explained.
"They are saying they'll only accept certain increases.
"You have to justify exactly where those increases are coming from: freight, materials, labour, and actually pinpoint that for them.
"They still will not accept increases above something like 10 per cent unless it's really exceptional.
"So we try and look for ways to cut back a little bit on the expenses, rather than having to constantly put those prices up."
Innes Willox, the chief executive of employer association the AiGroup, said many businesses are feeling the pinch, and accuses the Reserve Bank of lifting rates too far, especially with its last rate rise in November that took the cash rate from 4.1 to 4.35 per cent.
"The warning arising from today's announcement is that the economy may be slowing too rapidly and we may be looking at a hard rather than a soft landing," he argued.
"The November increase in interest rates is yet to fully flow through and further dampening impacts may tip the economy into reverse."
He would like to see the pace of wage increases moderate in line with the slowdown in inflation.
The last ABS Wage Price Index for the September quarter showed base pay packets rising 4 per cent over the past year, while the next December quarter numbers do not come out for another three weeks.