Could New Inflation Figures See Interest Rates Kept On Hold?

In positive news for the property market, figures announced this week show that our inflation rate saw a welcome, albeit nominal, decrease in June. No doubt we’ll all be hoping that this is a sign that interest rates may remain on hold when the Reserve Bank of Australia meets next week.

The Australian Bureau of Statistics reported that trimmed mean inflation, the RBA’s preferred measure of underlying price pressures, eased to 3.9 per cent in June from 4 per cent in March – only slightly above than the RBA’s official forecast of 3.8 per cent and softer than market expectations of 4 per cent.

Earlier in the week, economists had warned that an underlying inflation figure above 4 per cent would force the RBA to consider raising the cash rate from 4.35 per cent to 4.6 per cent. In fact, before the release of the inflation figures, markets were pricing a one-in-four chance that a rate rise was on the cards. While Wednesday’s figures appear unlikely to trigger a rate rise, they still underscore the persistence of Australia’s inflation.

Deloitte economists have cautioned the RBA that Australia is facing a delicate moment in its economic recovery and further interest rate hikes could “pull the rug out” from a steady, albeit slow, retreat from inflation and crush consumer and business confidence.

And while another rise can’t be completely ruled out, analysts are now generally expecting them to remain unchanged. If so, we’re likely to see a welcome increase in listings during early Spring as vendors anticipate more interest in their properties thanks to improved buyer sentiment. However, if rates do go up, buyer confidence is likely to diminish and buyers may sit tight.

That said, a 14th rate rise would be devastating for Prime Minister Anthony Albanese, whose standing in the polls has deteriorated since last year as voters have marked down his government over its handling of cost-of-living pressures.