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Businesses should not expect rate cuts until 2025 because of sticky inflation in insurance and housing prices, CreditorWatch has said.
The Reserve Bank is unlikely to bring forward rate cuts despite inflation plunging to its lowest level in three years, according to CreditorWatch.
Data from the Australian Bureau of Statistics (ABS) this week showed underlying inflation moderated to 2.7 per cent, returning to the RBA’s target band for the first time since October 2021.
Treasurer Jim Chalmers said the “heartening” numbers confirmed “we’ve made welcome and encouraging progress on inflation”.
But CreditorWatch chief economist Anneke Thompson said it would do little to shift the RBA’s hawkish stance.
“Overall, this result provides no surprises – on the upside or downside – to the RBA, and is unlikely to shift its thinking around the timing of the first cut to the cash rate,” she said.
“Given household consumption is likely to stay very subdued for the remainder of the year, it is likely that trimmed mean monthly inflation will continue its slow trend down over the next few months.”
She said the trimmed annual mean, a measure of core inflation, is still outside the RBA’s target range. It currently sits at 3.4 per cent (down from 3.8 per cent in July).
Inflation is also proving “sticky” in areas such as health, insurance and new dwellings.
“Rent inflation is still high,” she said. “Indications are that rent increases have stabilised across most of the country. But this stabilisation will take some time to be reflected in the ABS’ data.”
On Tuesday, the RBA kept interest rates at a 12-year high of 4.35 per cent for the seventh consecutive meeting.
Governor Michele Bullock said inflation is still some way above the midpoint of the 2–3 per cent target range.
“Taken together, the latest data do not change the board’s assessment at the August meeting that policy is currently restrictive and working broadly as anticipated. But there are uncertainties.”
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” she said.
She previously indicated the RBA will not cut rates until next year, despite many international counterparts already beginning their easing cycle.
Last week, the US Federal Reserve cut rates by 0.5 percentage points, following in the footsteps of the European Union, the UK, Canada and New Zealand.
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