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Inflation figures spell longer rate pause not a rate rise

The final hurdle in the fight against inflation may be proving a difficult one to jump, but it should not lead to an interest rate rise in June, according to experts.

The Real Estate Institute of Australia (REIA) President, Leanne Pilkington, said the latest Australian Bureau of Statistics (ABS) data showed the Consumer Price Index rose 3.6 per cent in the 12 months to April, following a 3.5 per cent rise in the year to March and 3.4 per cent in the year to February. 

“Whilst the CPI figure taken alone can be seen as disappointing, it comes on the back of other economic data including retail figures this week showing one of the weakest markets for generations,” she said.

“The Budget forecast of inflation down to 2.5 per cent by the end of the year appears optimistic but the current uptick in inflation should not flag an increase in interest rates merely a delay in a drop.”

Ms Pilkington said over the past four months, CPI had hovered just over 4 per cent once volatile items like fruit and vegetables, petrol, and holiday accommodation were excluded.

“The annual movement for the monthly CPI excluding the volatile items of fruit and vegetables, automotive fuel and holiday travel and accommodation, rose 4.1 per cent in April, the same as for March and up on February’s figure of 3.9 per cent,” she said. 

“This stickiness is the same as other countries are experiencing in getting inflation into the target range of their central banks.”

“Showing that the final hurdles are difficult.

“The most significant price rises were housing (up 4.9 per cent), food and non-alcoholic beverages (up 3.8 per cent), alcohol and tobacco (up 6.5 per cent ) and transport (up 4.2 per cent).

“Rental prices, supported by the Commonwealth Rent Assistance, showed a modest abatement in the rate of increase. Rents increased 7.5 per cent in the 12 months to April, down from 7.7 per cent in March and 7.6 per cent in February. In monthly terms, rental prices rose 0.5 per cent in April, down from a 0.6 per cent rise in March.

“These changes reflect the increase in CRA in mid-March 2024, which has the effect of reducing rents for eligible tenants. The April CPI will also reflect this change in assistance.

“The figures highlight the importance of CRA in keeping a lid on rent increases for eligible tenants and support the REIA’s advocacy to increase the payment to levels of twenty years ago.”

RateCity.com.au Research Director, Sally Tindall, said the prospect of a cash rate cut in 2024 remained in doubt following the higher than expected CPI figures.

“The RBA isn’t going to hike rates on the back of this data, but it won’t be entertaining the prospect of rate cuts any time soon either,” she said.

“The central bank is likely to be in a prolonged ‘wait-and-see’ period.

“While the RBA will not put excess weight on one month’s worth of data, looking back since the start of the year, Australia’s progress in the battle against high inflation has the wobbles.

“The RBA will need to see this swing right around before it’s going to formally entertain the possibility of cash rate cuts.

“If you’ve got a mortgage, understand your rate isn’t moving any time soon unless you do something about it.”

Ms Tindall said CBA’s new digital home loan was proof banks were ready to deliver lower rates to secure business.

“The stage three tax cuts coming in July will provide welcome relief to households squarely in the red, but if you’ve managed to balance the budget since the start of the hikes, consider putting that money in the mortgage,” she said. 

“Not only will it build up your financial buffer, it can help reduce the pain of higher rates.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.