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How Likely Are We To See Another Rate Rise?
Australia has experienced a welcome period of 'disinflation', as the annual rate of inflation eased in the June quarter.
Australian Bureau Of Statistics (ABS) data shows that the most recent consumer price index – AKA inflation – grew by just 0.8%.
Key points (TL;DR):
Leading economists say inflation reduction increases the chance of an August cash rate hold.
Leases, overseas holiday travel and accommodation prices, and financial services were big contributors to inflation, while real estate investment witnessed minor growth.
The current inflation rate is notably lower than market expectations.
Labour force data will influence the likelihood of a rate hike or hold.
What do the experts say?
"The 6.0% increase in the June quarter on an annual basis is a notch lower than the 7.0% annual escalation observed in the March 2023 quarter," explains Head of Prices Statistics at ABS Michelle Marquardt.
"This indicates the second succeeding quarter of diminishing annual inflation also referred to as 'disinflation', which follows from the zenith of 7.8% in the December 2022 quarter."
But does this mean we'll see a rate hold?
CreditorWatch's Chief Economist Anneke Thompson says the present inflation rate is considerably lower than the market had anticipated.
This could give those in debt reason to be optimistic, as the decline bolsters the possibility of a hold on the interest rate by the RBA.
It's just one of a few dominoes that need to fall favourably before we know whether there'll be a hold or hike.
Employment statistics are the next focus for the RBA.
"Labour Force data will be key to the RBAs decision-making process," says Thompson.
"The board will ideally anticipate some easing in the unemployment rate to decrease the likelihood of further wage pressure."
Why the dip in inflation?
The greatest contributors to inflation were:
Leases emerged as the frontrunner, climbing by 2.5%.
Overseas holiday travel and accommodation prices, which rose by 6.2%.
Financial services saw a surge of 2.5%.
Real estate investment from homeowners experienced a modest increment of 1%.
Significant strides have been made towards the deceleration of goods inflation.
“Goods inflation also fell from an annual 7.6% in March to 5.8% in June," says Anneke Thompson.
"These figures demonstrate that the goods inflation sector is highly reactive to monetary policy adaptations. The latest data clearly indicts that consumers have indeed retuned their habits in response to the RBA's tightening measures.
“These outcomes minimise the potential for further enhancement of the cash rate in the upcoming August meeting."
Economic pundits also say the inflation slump increases the possibility of an August cash rate hold.
"With the slowing of inflation figures this week it's looking increasingly likely that we may see a hold when the RBA meets next week," says Compare Club Head of Research Kate Browne. "However, it's unlikely that this is the last of the rate rises for the year."
The odds for the Reserve Bank to hold the cash rate once again has just soared," says Canstar's Effie Zahos.
"Despite unexpectedly healthy job figures in June, unemployment remains a lagging indicator. If this Friday releases flat retail sales data for June, there would naturally be less pressure on the Reserve Bank to further hike the cash rate in August."
Research Director for RateCity Sally Tindall agrees.
"Two consecutive quarters of slowing annual inflation in Australia has made it more probable for a back-to-back cash rate pause in the impending board meeting next Tuesday," she says.
"The cash rate may have hit a peak, yet, it's too early to say with any degree of confidence. The potential for another hike in the coming months can't be completely ruled out just yet."
The Bottom Line
The RBA is likely to adopt a 'wait and see' strategy for this month.
The recent inflation trend does make a pause in the August cash rate more likely, although nothing is certain until unemployment rates, retail sales data, and inflation patterns are clear.
A hold is not guaranteed, but those in debt can be optimistic. But, as we've learnt in the last year or so, nothing is certain when it comes to the RBA!
Kate Browne says: "Whether it's a hold or a hike, mortgage holders should make sure they are on the best possible rate for their loan – as even a few percentage points can make a real difference. Our home loan experts can help you to try negotiate a better rate with your current lender or see if refinancing with another lender is possible to help reduce those rising repayments."
Go deeper: Government planning to axe the first-homeowner grant?
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
