Latest inflation figures put case for rate hike on ice

Annual inflation in Australia has today slowed for the second consecutive quarter, opening the door to a second consecutive pause to the cash rate at Tuesday’s RBA meeting.

Quarterly inflation figures released from the ABS today have shown the cost of a basket of goods has increased by 6 per cent across the year. This is down from 7.0 per cent posted in the March quarter and 7.8 per cent in the December 2022 quarter.

The ABS’ monthly CPI indicator for June also slowed to an annual increase of 5.4 per cent, down from the revised 5.5 per cent the month before.

ABS Consumer Price Index, Australia

Annual movement

Source: ABS Consumer Price Index, Australia. Quarterly CPI and Monthly CPI.

A 13^th cash rate hike not off the cards entirely

Today’s CPI figures are one of the key data sets the RBA needs ahead of Tuesday’s meeting, with the ABS’ retail sales figures still to come this Friday.

The annual headline figure of 6 per cent for the June quarter, while now clearly in disinflationary territory, is still double the top of the RBA’s target band of 2 - 3 per cent.

While the annual price rise for goods has slowed considerably from the 9.6 per cent peak in September 2022, down to 5.6 per cent for the June quarter, the cost of services is the highest since March 2001. That said, the quarterly rate of increase has slowed from 1.7 per cent in the March quarter to 0.8 per cent in the June quarter.
Another strong set of labour force figures, which saw unemployment remain steady at 3.5 per cent, means the RBA still has cover to fire off another rate hike in the months ahead if it needs to.

If this happens, the average borrower with a $500,000 loan at the start of the hikes last May, could end up paying a total of $1,135 more a month on their mortgage.

Potential impact to borrowers if the cash rate rises to 4.35%

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

RateCity.com.au research director, Sally Tindall, said: “The slowing of Australia’s annual inflation rate for the second quarter in a row increases the likelihood of a second consecutive pause in the cash rate following next Tuesday’s Board meeting.”

“The cash rate could well be at the peak, but no-one can say this with any degree of certainty just yet. There’s enough in this month’s data that potentially points to another hike in the months to come,” she said.

“Services inflation might have slowed between quarters, but it still posted the highest annual increase since 2001.

“On balance, a pause is shaping up to be the card the RBA is most likely to play this month.

“With hundreds of thousands of mortgages still to come off their fixed rates this year, and a two-to-three-month lag on rate hikes for variable borrowers, there’s still a lot of tightening still to hit people’s bank balances even without another hike.

“If you’ve got a mortgage, plan for at least one more RBA hike in the months ahead. If it doesn’t materialise, then you’ll be able to pocket the extra cash, ideally back into your mortgage,” she said.

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