CPI at lowest level in 3.5 years while CBA pushes back cash rate cut forecast to 2025

All bets are off for a November RBA rate cut, despite a drop to Australia’s annual inflation rate from 3.8 per cent to 2.8 per cent in the September quarter.

The Consumer Price Index is now at the lowest level since the March quarter of 2021, and well below the peak of 7.8 per cent at the end of 2022, according to the ABS.

The significant fall in headline CPI was largely on the back of energy rebates kicking in, and cheaper petrol prices.

Trimmed inflation, the RBA’s preferred measure, printed at 3.5 per cent in September, down from 4.0 per cent in the June quarter.

ABS Consumer Price Index, Australia - annual movement

Source: ABS Consumer Price Index, Australia, Quarterly CPI and Monthly CPI indicator, annual change (%).

CBA takes rate cut off the table for 2024

Today’s ABS Consumer Price Index data printed broadly in line with market expectations. However, trimmed inflation came in higher than was forecasted by Australia’s biggest bank, CBA.

As a result, CBA today updated its cash rate forecast, pushing the first projected cash rate cut out from December 2024 to February 2025.

This means the bank expects the cash rate will settle at 3.35 per cent, instead of 3.10 per cent, by the end of next year.

CBA forecast 

Source: CBA economics.

All four big bank economic teams now believe the next move from the RBA will be a 0.25 percentage point cut in February 2025.

Current big four bank cash rate forecasts

While today’s data shows CPI is moving in the right direction, the RBA will need to be absolutely sure trimmed mean inflation is going to return to its 2-3 per cent target before cash rate cuts are on the agenda in future Board meetings.  

What can borrowers do now?

It has been almost 12 months since the RBA last changed the cash rate, so borrowers should consider checking that their interest rate is still competitive.

• 6.35%: average existing owner-occupier variable rate (RBA lending rates)

• 5.64%: lowest variable rate on RateCity.com.au (discounted for first 2 years)

• 4.99%: lowest fixed rate on RateCity.com.au for 3 years

• 40: number of lenders with at least one variable rate under 6%.

RateCity.com.au money editor, Laine Gordon, said: “While this CPI result was broadly as expected, it won’t be enough for the RBA to pull the trigger on a cash rate cut in 2024.”

“Australia’s inflation is moving in the right direction. This is good news for households that have faced a headwind of cost of living pressures,” she said.

“Electricity rebates have brought some temporary relief to families doing it tough and petrol prices at the bowser have come down substantially.  

“Household spending data from CBA in September has shown a ‘muted response’ to income tax cuts, with many families preferring to pay down debt and save rather than spend it.

“No one knows when exactly the cash rate will come down, but if CBA’s economists are on the money, rate relief is moving further into the horizon.

“That said, if all four major banks’ economic teams are correct, households could see rate relief in the next four or five months.

“If you’ve got a mortgage and want to see your repayments go down, make it happen yourself and don’t waste any time doing it,” she said.

Lowest home loan rates on RateCity.com.au

Source: RateCity.com.au. Hume Bank’s rate is discounted for the first 2 years.

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