Australian home borrowers could in be line for rate cuts soon with inflation plunging to a three-year low.
Headline inflation, also known as the consumer price index, fell to 2.8 per cent in the year to September, marking a steep drop from 3.8 per cent in the June quarter.
The quarterly figure is good news because inflation is now within the Reserve Bank’s 2 to 3 per cent target for the first time in three years.
This makes an interest rate cut in 2024 a live option, despite RBA Governor Michele Bullock repeatedly ruling out any relief before Christmas.
Headline inflation fell to levels unseen since the days of Melbourne being in lockdown.
This was a result of cheaper electricity and petrol prices, and is now less than half the 6 per cent level of June 2023 when interest rates were still climbing.
Treasurer Jim Chalmers highlighted how the CPI had fallen to the lowest level since March 2021 or ‘the lowest it has been in almost four years’.
‘Today’s numbers show we are on track and on target for a soft landing in our economy,’ he said.
Underlying inflation or the trimmed mean, stripping out volatile price movements for an average, was higher at 3.5 per cent but it represented a big drop from 4 per cent in the June quarter.
The federal government’s $300 electricity rebates for everyone, regardless of their income, led to energy prices plunging by an annual pace of 24.1 per cent in September, based on monthly data.
Australian home borrowers could in be line for rate cuts with inflation falling
Former Queensland Labor premier Steven Miles lost Saturday’s election after introducing a one-off $1,000 electricity rebate for 2024-25.
Petrol prices plunged by 14 per cent over the year with motorists now paying $1.80 for unleaded in some suburbs of the big cities.
This less comprehensive monthly data from the Australian Bureau of Statistics also had headline inflation growing by just 2.1 per cent over the year – putting it on the low side of the RBA’s 2 to 3 per cent target.
Its underlying measure of CPI had prices growing by just 2.7 per cent when volatile items like fruit and vegetables, petrol and holiday travel were excluded.
Food was very mixed with fruit and vegetable prices soaring by 9.1 per cent over the year, but dairy prices fell by 0.2 per cent.
Meat and seafood prices rose by just 0.9 per cent while bread and cereal went up by 1.8 per cent.
Tobacco had the biggest increase of 12.9 per cent owing to excise indexation in September.
But rents rose by 6.6 per cent – or more than triple the monthly headline number – in a clear sign high immigration and the influx of international student are prolonging a rental vacancy crisis.
Treasurer Jim Chalmers highlighted how the CPI had fallen to the lowest level since March 2021 or ‘the lowest it has been in almost four years’
Headline inflation, also known as the consumer price index , fell to 2.8 per cent in the year to September, marking a steep drop from 3.8 per cent in the June quarter
Services inflation is still an issue too with the quarterly figures showing a 6.1 per cent increase for insurance and financial service and a 6.4 per cent rise in school costs.
Health costs went up by 4.8 per cent but transport costs fell by 3.8 per cent, after Queensland’s former Labor government introduced 50 cent transport fares.
The Reserve Bank’s two-day November meeting is being held on Monday and Tuesday next week.
While no major bank is expecting a Melbourne Cup day, the Commonwealth Bank had been forecasting a December rate cut.
On Wednesday, it revised its prediction, pushing out the first rate cut to February with its head of Australian economics Gareth Aird arguing underlying inflation was still too high.
‘The upshot is that we no longer expect the RBA to cut the cash rate in December 2024,’ he said.
‘Instead we pencil in February 2025 for a 25 basis point rate decrease.’
This would mark the first rate cut since November 2020 during the Covid pandemic.
The futures market had been pricing in three to four rate cuts in 2025, that would only partially undo the RBA’s 13 increases in 2022 and 2023 that have taken the cash rate to a 12-year high of 4.35 per cent.
Deloitte Access Economics partner Stephen Smith said the RBA was more likely to start cutting rates in early 2025, noting headline inflation was artificially lower.
‘While there will be a lot of focus on annualised headline inflation falling back within the RBA’s target band of 2 to 3 per cent, it has been pushed down by state and federal government cost of living measures like electricity bill subsidies,’ he said.
‘Rate relief will come in early 2025 with inflation to average 3 per cent over the 2025-26 financial year.’