Is the Drop in Inflation Good News for Mortgage Holders?
Inflation dived last month to its lowest rate in three years as government cost-of-living relief and cheaper petrol helped household budgets – but the Reserve Bank will wait for a more sustained drop before it starts cutting interest rates.
Headline consumer price inflation in August was 2.7%, the slowest increase since August 2021, the Australian Bureau of Statistics said on Wednesday. That compared with the 2.7% rate expected by economists and July’s 3.5% annual pace.
The underlying inflation measure, which strips out more volatile prices also fell. Known as the trimmed mean, this gauge came in at 3.4%, down from July’s 3.8%.
Electricity prices fell by a record 17.9% thanks to government rebates, while automotive fuel was 7.6% cheaper. “Excluding the rebates, electricity prices would have risen 0.1% in August and 0.9% in July,” said Michelle Marquardt, ABS’s head of prices statistics.
Renters, though, didn’t get much relief, with the annual increase at 6.8%, slightly lower than previous months. Food and non-alcoholic beverages were 3.4% higher than in August 2023, easing from the 3.8% annual increase registered in July. It was the lowest reading since February 2022.
While the fall in inflation will be welcomed by households, it is unlikely to sway the Reserve Bank governor, Michele Bullock. She wants to see the more comprehensive September quarter numbers, due out on 30 October, but is doubtful the drop will be enough yet to prompt an interest rate cut.
“The board needs to be confident that inflation is moving sustainably towards the [2-3%] target before any decisions are made about a reduction in interest rates,” Bullock said on Tuesday. “Progress in getting underlying inflation down has slowed and is likely to have remained slow in the September quarter.”
Still, Bullock’s admission after the RBA meeting yesterday, that the board did not “explicitly” consider lifting its cash rate at this week’s meeting shifted market expectations. Investors bet there is about a one-in-four chance of a rate cut in November and a two-in-three chance by December, prior to today’s inflation release, and Comm Bank is still expecting a rate cut in Novemember.
Betashare’s chief economist noted underlying inflation was less than the 3.5% forecast by the RBA for the December quarter, stating, “If annual trimmed mean inflation does not lurch higher [and] continues its recent trajectory, there is a growing chance it could reach the mid-point of the RBA’s 2-3% target band by year-end, which would be significantly better than current RBA forecasts. “If so, there would be a good chance the RBA could cut interest rates before Christmas.”
(Source: Guardian Australia 25 September 2024)
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