A interest rate cut could come as soon as next month when the Reserve Bank meets for the first time of 2025 – despite persistent inflation in some goods and services.
Data from the Australian Bureau of Statistics released on Wednesday showed prices rose 2.3 per cent in the year to November, up from 2.1 per cent in the year to October.
Despite the rise in the headline inflation rate there has been cooling on all-important underlying inflation – which strips out irregular or temporary price changes – which could persuade the RBA to ease interest rates.
Wednesday’s figures show falling petrol and electricity prices, but rents and groceries are still rising.
Electricity prices were down 21.5 per cent and automotive fuel was down 10.2 per cent but food and drinks were up 2.9 per cent, alcohol and tobacco up 6.7 per cent and recreation and culture was up 3.2 per cent..
The bureau’s monthly report provides some valuable information on price directions, but it is the less-volatile quarterly figures which the RBA watches more closely.
The trimmed mean measure cooled to 3.2 per cent in November, down from 3.5 per cent.
The November figure was also slightly under the Reserve Bank’s last projection in December, and potentially low enough to convince the bank to cut rates at its February 18 meeting.
Michele Bullock said the RBA is of the view inflation is being tamed despite keeping the interest rate at 4.35 per cent at its last board meeting for 2024
The RBA held the interest rate steady at 4.35 per cent at its last meeting of 2024 but governor Michele Bullock revealed the board was of the view inflation was being tamed.
Commonwealth Bank is the only one of the big four banks that has stuck to its original rate timing forecast, expecting the first cut to occur in February.
NAB, Westpac, and ANZ had previously agreed but all had since revised that forecast and now expect no cut until May.
Canstar data insights director Sally Tindall warned borrowers not to count on rates to drop.
‘If you have a mortgage, don’t just cross your fingers and hope for the best,’ she said.
‘Get on the front foot over summer by knocking down your interest rate as far as possible, either by haggling or refinancing.
‘That way, when RBA cuts do finally come, you can have your cake and eat it too.’
State Street Global Advisors APAC economist Krishna Bhimavarapu said ‘we can now confidently say that disinflation is running apace’.
‘The annual trimmed mean (3.2 per cent) continued moving towards the Reserve Bank of Australia’s target band, and on a more encouraging side, inflation in the new dwellings category was the weakest since mid-2021,’ he said.
The central bank has been putting more emphasis on underlying inflation measures as they are better insulated from volatility and temporary price changes from the likes of power bill relief.
Treasurer Jim Chalmers said both the headline and underlying numbers were tracking in the right direction.
‘Headline inflation has now been in the bottom half of the Reserve Bank’s target band for three months in a row, for the first time since 2021,’ he told reporters on Wednesday.
‘We know that inflation doesn’t always moderate in a perfectly straight line.
‘When we came to office, inflation had a six in front of it, and it was rising. Now inflation has a two in front of it.’
Treasurer Jim Chalmers said inflation was tracking in the right direction despite he headline inflation rate seeing an uptick in the most recent numbers
EY senior economist Paula Gadsby said the persistent inflation in the price of services was evidence enough for the RBA to keep rates where they are.
The economist said the central bank would need further evidence prices were moderating from December quarter inflation numbers, due to be published at the end of January, and ahead of the RBA’s February meeting.
‘Lacklustre productivity growth, a resilient labour market, and strong government spending could keep inflation elevated,’ she said.
‘This likely points to the Reserve Bank board keeping the cash rate at 4.35 per cent through the first quarter of this year, and possibly later.’
Indeed, November’s headline annual inflation rate inched higher to 2.3 per cent, from 2.1 per cent.
While an increase was expected, the uptick slightly exceeded expectations of a 2.2 per cent result.
ABS head of prices statistics Michelle Marquardt said the rise in annual headline inflation in part reflected the timing of government energy subsidies.
‘In some states and territories, households received two rebate payments in October in lieu of not receiving a payment in July,’ she said.
‘From November most households received one payment.’
