‘A lot comes down to Wednesday's read': Economists name key figure every mortgage holder wants

News.com.au

3 days ago

Millions of Australian mortgage holders will be closely watching the release of Wednesday's consumer price index, with any inflation figure lower than 0.7 expected to be good news.
Economists say that would put the quarterly trimmed mean inflation rate between 2.6 and 2.7 per cent over the year – within the RBA's target band of between 2 to 3 per cent – and open the door for further interest rate relief.
Trimmed mean inflation, which excludes volatile prices including food and fuel, is the figure the RBA pays most attention to in its battle to control inflation.
Wednesday's CPI release comes after annual trimmed mean inflation fell to 2.9 per cent in the March quarter, its lowest level since December 2021. It hit a high of 7.8 per cent the following December.
AMP chief economist Shane Oliver said the RBA was looking for further proof inflation had been beaten, with a quarterly figure of between 0.6 or 0.7 likely to sway it to cut the official cash rate after it surprisingly kept it on hold in July.
'A lot comes down to the CPI that comes out on Wednesday,' Dr Oliver said.
'If the CPI is in line or a little bit higher than the RBA's trimmed mean forecast of 2.6 per cent for the year then I think we will get a rate cut.
'If it is 2.8 or 2.9, then they might think, let's wait a little while longer.'
Dr Oliver's forecast comes in line with three of the four major banks, with Westpac, ANZ and the Commonwealth Bank all calling quarterly trimmed mean inflation to come in at between 0.6 and 0.7 per cent.
But due to rounding, CBA has pencilled in an inflation rate of 2.8 per cent.
CBA economist Harry Ottley, who is expecting inflation to come in at the top of the range, said in a note this result would come in slightly above the RBA's recent estimate of 2.6 per cent.
'If our forecasts are correct, we still expect the board to cut the cash rate in August,' Mr Ottley said.
Treasurer Jim Chalmers said regardless of Wednesday's inflation figures, the cost of living was headed in the right direction.
'Any headline inflation number tomorrow with a two in front of it will confirm that we have been in the Reserve Bank target band for a full year,' the Treasurer said.
'Whatever the quarterly fluctuations or monthly fluctuations, the direction of travel when inflation has been clear.
'Both headline and underlying inflation are now back in the Reserve Bank's target and for the first time since 2021.'
RBA governor Michele Bullock said after July's announcement that the cash rate would be kept on hold at 3.85 per cent was a pause about timing rather than direction.
'All members agreed that, based on the information currently available, the outlook was for underlying inflation to decline further in yearâ€'ended terms, warranting some additional reduction in interest rates over time,' she told reporters.
'The focus at this meeting was on the appropriate timing and extent of further easing, against the backdrop of heightened uncertainty'.
Wednesday's CPI figures will be the last bit of economic data released ahead of the RBA's August 11 to 12 meeting.
An inflation print in line with the RBA's expectation would follow weaker than expected jobs figures released in June.
The unemployment rate rose to 4.3 per cent last in June, beating market expectations of 4.1 per cent, according to the Australian Bureau of Statistics.
Despite the Australian dollar crashing and the sharemarket jumping on the news, Ms Bullock said it wasn't the 'shocking result' markets were calling during her speech at the Anika Foundation.
'Some of the coverage of the latest data suggested this was a shock – but the outcome for the June quarter was in line with the forecast we released in May,' she said.
Ms Bullock said the board wanted to see a gradual easing in labour market conditions, that has so far been most evident in fewer job vacancies, reductions in hours worked and declining rates of voluntary job switching.
'These shifts aren't without their challenges, but they all tend to be less disruptive than outright job losses,' she said.