Inflation results the nail in the coffin for rate cuts in 2024

Key takeaways

CPI rose 0.2% in the September 2024 quarter and 2.8% annually. The quarterly rise is the lowest since the June 2020 quarter.

However, trimmed mean inflation, which excluded the substantial drops in electricity and automotive fuel, rose by 0.8% in the September quarter and 3.5% annually.

Of concern, Services inflation rose in the September quarter, from 4.5% to 4.6% annually.

All bets are off for a November RBA rate cut despite a drop in Australia’s annual inflation rate from 3.8 per cent to 2.8 per cent in the September quarter.

The Consumer Price Index is now at the lowest level since the March quarter of 2021, and well below the peak of 7.8 per cent at the end of 2022, according to the ABS.

The significant fall in headline CPI was largely due to energy rebates kicking in and cheaper petrol prices.

Trimmed inflation, the RBA’s preferred measure, printed at 3.5 per cent in September, down from 4.0 per cent in the June quarter.

While Australia’s annual headline inflation rate is now in the RBA’s target band and, for the first time in three and a half years, under 3%, the primary drivers of this are the state and federal government’s temporary energy bill relief programs and lower petrol prices – factors the RBA has said it will look beyond.

Meanwhile, services inflation is proving to be difficult to shift, with a small rise this quarter from 4.5% to 4.6%.

This alone is too high for the RBA to change strategy.

CBA the last of the big four banks to push back its cash rate forecast to 2025

CBA has today pushed back its forecast for the timing of the first cash rate cut from December of this year to February 2025, following today’s inflation figures.

The economic team at Australia’s biggest bank now also expects a total of four cuts by the end of 2025, rather than five as previously forecast.

As a result, all four big banks now expect the first cut will be in February 2025 with the total number of cuts ranging from three to five.

Australia’s 4.35% cash rate to hit its first anniversary next Friday

If the RBA makes no change at next Tuesday’s Board meeting, as expected, Australia’s cash rate of 4.35% will chalk up its first birthday on Friday November 8 – a milestone most borrowers would rather forget.

Canstar analysis shows a typical owner-occupier with a $600,000 loan who has copped all of the rate hikes, will end up paying an estimated $42,370 in interest over this 12-month period.

However, a borrower who refinanced to a more competitive rate of 6.00% in November 2023 will end up paying an estimated $35,709 in interest over the year, saving $6,660.

Commentary from Canstar’s Data Insights Director, Sally Tindall,

“Any hope of a cash rate cut in 2024 is now well and truly dead in the water.”

“While headline inflation is now officially in the RBA’s target band, this number is largely based on smoke and mirrors created by temporary electricity rebates and volatile petrol prices.

“Trimmed mean inflation, which is the RBA’s preferred measure, is still too far out of striking distance for the Board to change tack, particularly with services inflation moving in the wrong direction.

“Unfortunately, Australian borrowers will need to keep their shoulder to the wheel into 2025. While all four big bank economists now expect the first cut to come in February, if you have a mortgage, don’t go banking on these predictions.

“While there’s a high chance the cash rate will start coming down in 2025, there’s no guarantee exactly when this will happen, how many rate cuts there will be and just how much the banks will pass on.

“The RBA has been clear it will be driven by the data and data can be volatile.

“If you do want rate relief, take matters into your own hands.

“Our research shows if an owner-occupier with a $600,000 mortgage a year ago refinanced to a rock bottom rate of 6 per cent, they could have potentially saved up to $6,660.

“Instead of kicking yourself over not having refinanced earlier, take action to make sure you’re not overpaying on your biggest monthly expense.”

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.