Inflation data may point to earlier rate cuts: Brokers

This marked the smallest annual rise since January 2022, according to the ABS.

As such, brokers from Homeloanexperts.com.au have weighed in with their predictions on how this data, along with upcoming datasets – notably the upcoming December quarter CPI data – will influence the Reserve Bank of Australia’s (RBA) decision regarding interest rates.

Mortgage broker Steven Chan said the upcoming December numbers “may temper optimism” despite expectations that inflation will continue a downward trajectory.

“If retail spending ends up contributing to a bounce-back in inflation, then expect one of two scenarios: 1) A spike in inflation [although probably minor] or 2. A more moderate fall in inflation, which is more likely,” Mr Chan said.

“This may make the RBA want to keep rates paused next month, given the likely downwards trend (a rate cut is unlikely, as we’re still near full employment). If the trend of falling inflation continues, rate cuts could move up from 2025 to mid-late 2024.”

Jonathan Preston, senior mortgage broker at Homeloanexperts.com.au, compared Australia’s current economic situation to the US’s, stating that “historically, the federal funds rate had to exceed CPI for inflation to have been considered ‘tackled’”.

“I think in every past inflationary cycle in recent history, that rate exceeded CPI before a rate cut. And in the current cycle, the US hit this point a while ago and the rate cut talk there has been escalating,” Mr Preston said.

“Here in Australia, there was a lot of talk that we would also have to meet this requirement, which was a call for way higher cash rates because we had high inflation. We have now finally hit this point here, so hopefully the worst is behind us as well.”

General manager Bhisan Raj KC added that the earliest possible period for interest rate cuts could occur towards the end of 2024, however, this will be dependent on future data.

“December data is going to be crucial, as people are expected to spend more during Christmas and New Year. The inflation target is between 2 and 3 per cent. So, there should be a good period where inflation remains low or below the cash rate, when the RBA can consider reducing the cash rate,” Mr Raj said.

Mortgage broker Sheng Ye said the November CPI data is “welcome news to everyone, especially borrowers”.

“People can be a bit relieved that the RBA is unlikely to hike up the rate in February 2024,” Mr Ye said.

“However, we probably need to be a bit cautious and observe a few more months before we draw the conclusion that inflation is finally under control.”

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