New inflation data shows looming ‘threat’ if RBA fails to act

Figures released Wednesday from the Australian Bureau of Statistics (ABS) revealed inflation has finally come within the target range of the RBA, with the latest consumer price index rising by 2.8% over the past 12 months.

Economists have revealed that the inflation change will give the Reserve Bank plenty to think about at its next Tuesday board meeting, but many have expressed doubt that a cash cut will come as soon as November.

It comes as new housing data has revealed time is ticking for homeowners requiring urgent mortgage relief.

An alarming poll by comparison group Finder.com.au has revealed one in seven homeowners would have to sell their home by February or apply for hardship unless interest rates began to fall.

Many of these homeowners have unaffordable debt and have burned through their emergency cash reserves over the past two years of elevated interest rates.

About two in five homeowners said a lack of interest rate relief would mean they’d have to slash their expenditure even further to be able to afford their loans over the coming months.

The next interest rate decision will come after the Reserve Bank's monetary policy committee meet next Tuesday. Picture: Getty

Finder money expert Rebecca Pike said many homeowners had run out of the required funds to hold on to their properties for a few more months.

“Thousands of stressed mortgage holders can’t manage much longer with home loan costs posing a threat to people’s way of life,” Ms Pike said.

“Many will be in a very difficult position by the new year if the RBA hasn’t cut the rates.”

Ms Pike said many borrowers had drained emergency savings topping up their home loan. “Households are desperate for some home loan relief in the form of a rate drop.”

It’s reached the point that every dollar makes a difference, homeowners told Finder.

A third said they’d need their repayments to drop by at least $500 a month to be financially comfortable again, while about 14% said they needed their repayments to fall by $1000 a month.

Despite homeowners needing relief, REA Group senior economist Eleanor Creagh said the RBA was unlikely to budge next month.

REA Group senior economist Eleanor Creagh says she does not expect the RBA will make a cut this side of Christmas. Picture: Supplied

“Outside of an unforeseen shock, a sharp rise in unemployment, or substantially lower underlying inflation, the RBA is likely to remain on hold in the months ahead as the board look to sustainably return inflation to the target range,” she said.

“Though headline inflation has fallen back to the upper end of the RBA’s 2-3% target range, underlying inflation pressures remain too strong, allowing the RBA to look through the fall in headline inflation.”

Money expert Richard Whitten said: “Today’s inflation figures are broadly within the RBA’s target then, meaning there will be more pressure for a rate cut in November.

“But the idea of cutting the cash rate the moment inflation falls into the upper end of the target band feels rash to me. I imagine the RBA would still wait until December to cut, unless inflation has really dropped off.”

The ABS indicated that the most significant price rises this quarter were for recreation and culture (+1.3%), food and non-alcoholic beverages (+0.6%), and alcohol and tobacco (+1.3%).

Ray White economist Nerida Conisbee said there was both a case for and against a rate cut this year.

Ray White economist Nerida Conisbee says there is little case for a cut this year as spending is still continuing. Picture: realestate.com.au

“In the case against a rate cut before Christmas, the RBA governor has been steadfast in saying that they won’t cut quickly even if inflation comes within target,” Ms Conisbee said.

“In addition, part of the slowdown is occurring because of the Federal Government’s energy bill fund relief rebates, as well as rent relief being provided by the government.

“People still seem to have quite a bit of money – as evidenced by spending on travel. The economy isn’t exactly firing but employment growth remains reasonable.”

The case for a cut this year was that the economy could be slowing, Ms Conisbee said

“Quarterly inflation came in below expectations and many of the factors driving inflation were not necessarily demand led. In particular, fruit and vegetable price rises occurred because of adverse weather conditions,” she said.

“Most importantly however is the time taken for interest rate changes to flow through the economy – the risk is that rates are kept too high for too long and the sluggish economic growth turns into a recession.”

This article first appeared on realestate.com.au and has be republished with permission.