Inflation Expectations dropped 0.7% points to 5.3% in January 2023 – the largest monthly fall on record

In January 2023 Australians expected inflation of 5.3% annually over the next two years, down 0.7% points from December 2022. This fall in Inflation Expectations came before the RBA met in February and decided to raise interest rates for a ninth consecutive meeting, up 0.25% to 3.35%.

This is the largest monthly fall on record for Inflation Expectations and the largest two-month fall (-1.2% points) in the index easily beating the previous record two-month fall during the first two months of the pandemic – down 0.7% points from March 2020 (4.0%) to May 2020 (3.3%).

The early indications in February are that the decline in Inflation Expectations seen in January 2023 has continued with the latest weekly reading falling to only 5.1%.

Inflation Expectations dropped significantly in all states in January – by at least 0.4% points

A look at Inflation Expectations on a State-based level shows the decline in Inflation Expectations was nation-wide in January dropped by between 0.4% points in Victoria to as much as 1.2% points in Tasmania.

Inflation Expectations are now highest in Victoria at 5.5% (down 0.4% points from a month ago), Queensland at 5.5% (down 0.8% points) and South Australia at 5.5% (down 0.9% points).

In Australia’s largest State of New South Wales Inflation Expectations are again in line with the national average at 5.3% (down 0.7% points) while they are below the national average in Tasmania at 5.1% (down 1.2% points) and once again lowest of all in Western Australia at only 4.7% (down 0.5% points)

Looking at the Country/City divide shows large falls for each with Inflation Expectations in Country Areas at 5.8% (down 0.8% points on a month ago) still far higher than in Capital Cities at 5.1% (down 0.6% points).

Inflation Expectations Index long-term trend – Expected Annual Inflation in next 2 years

Source: Roy Morgan Single Source: Interviewing an average of 4,700 Australians aged 14+ per month (April 2010-Jan. 2023).

Roy Morgan CEO Michele Levine says Inflation Expectations fell by a record 0.7% points in January and are now down 1.2% points since peaking at a decade high of 6.5% in November:

“Inflation Expectations have continued to fall in 2023, down by 0.7% points to 5.3% in January – the lowest they’ve been since May 2022 – the first month the RBA raised interest rates last year.

“The fall in January is the largest monthly fall on record and the two-month fall of 1.2% points is the largest two-month fall on record. These results show consumers essentially agree with the RBA’s forecast that inflation will peak during the December quarter 2022.

“If Inflation has peaked that will likely mean the end of the RBA’s record-breaking set of increases sooner rather than later. The latest news suggests the RBA expects to raise interest rates on two more occasions in March and April before pausing.

“The finish to interest rate increases would represent a reprieve to those with mortgages paying off their home loans although thus far the economy has continued to perform strongly despite a record nine straight interest rate increases.

“Looking forward the latest Inflation Expectations data from February shows a further decline with the latest weekly reading now at 5.1% in mid-February. If this reading is sustained during February this would be the lowest level for Inflation Expectations for exactly a year.

“The key data points to watch in terms of inflation and the economy are the ABS Wage Price Index due out later this week and the ABS Monthly Consumer Price Indicator (CPI) next due out in early March which will show whether wage pressures are increasing and whether inflationary pressures are reducing in line with expectations.”

See below for a comprehensive list of RBA interest rate changes during the time-period charted above.

The data for the Inflation Expectations series is drawn from the Roy Morgan Single Source which has interviewed an average of around 4,900 Australians aged 14+ per month over the last decade from February 2013 – January 2023 and includes interviews with 5,984 Australians aged 14+ in January 2023.

For comments and information about Roy Morgan’s Inflation Expectations data, please contact:

Roy Morgan Enquiries
Office: +61 (3) 9224 5309
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