Drop in CPI all but rules out rate hike on Tuesday

Australia’s annual inflation rate has clocked in at 4.9 per cent for July, down from 5.4 per cent for the previous month, all but ruling out a rate hike next Tuesday.

The ABS Monthly Consumer Price Index Indicator released today shows annual inflation excluding volatile items and holiday travel also slowed from an annual increase of 6.1 per cent in June to 5.8 per cent in July.

Today’s data confirms Australia’s inflation problem is continuing to ease. While an annual headline inflation rate of 4.9 per cent is still too high, this is the third month in a row inflation has slowed, according to the ABS’s monthly dataset.

RBA unlikely to move at Governor Lowe’s final meeting

The majority of data received this month points to the cash rate remaining on hold at 4.10 per cent in September.

Today’s inflation results, along with the rise in unemployment to 3.7 per cent in seasonally adjusted terms will reassure the Board the 12 previous rate hikes are now having an impact.

While retail trade was higher than expected, it was still considered weak when factoring in both inflation and population growth.

Could this be the end of the cash rate hikes?

Today’s data firms up the chances the cash rate is already at the peak, however, borrowers should still plan for at least one more rate hike before the end of the year just in case.

All four big bank economic teams believe the cash rate will remain on hold next Tuesday, with just NAB predicting one more potential hike towards the end of the year.

Should this happen, the average borrower with a $500,000 loan at the start of the hikes last May, could end up paying a total of $1,211 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 “While the cash rate is likely to remain on hold next Tuesday, borrowers should stay on their guard.

“Governor Lowe’s last meeting is unlikely to include any nasty surprises,” she said.

“Inflation is now coming down nicely. At an annual rate of 4.9 per cent, it’s still too high, but the data is tracking in the right direction.

“The third pause in as many months, if it materialises, will be welcome news for borrowers, but it won’t provide any relief for the households already up against the ropes.

“Most households have only just started paying for the last hike back in June. The squeeze on household finances is likely to continue well into next year.

“While there’s a chance we’re already at the peak, it’s impossible to rule out further hikes altogether.

“If you’ve got a mortgage, plan for at least one more hike. 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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