Mortgage holders could have to wait another year for much-needed interest rate relief as investors and economists reject predictions of the RBA’s first interest rate cut due to rising inflation.
The monthly inflation gauge rose for the second month in a row, rising to 3.6 per cent for the 12 months ending in April, up from 3.5 per cent, according to the Australian Bureau of Statistics.
The 3.6 per cent growth in consumer prices keeps inflation moving further away from the Reserve Bank’s target range of two per cent and three per cent.
The inflation figures were higher than expected, causing the futures market to rule out the prospect of a rate cut in May 2025 and predict relief to be postponed until December 2025.
Investors have delayed the Reserve Bank of Australia’s first interest rate cut from May 2025 to December 2025.
Betashares chief economist David Bassanese said the difficult reading on inflation would test the Reserve Bank’s patience and make a rate cut before Christmas unlikely.
“Indeed, there is a latent risk that the RBA will feel compelled to raise rates further to reduce inflation in those demand-sensitive areas that it can influence,” he wrote, estimating the odds of such an increase at around 30 to 40 percent.
Saxo’s head of FX strategy Charu Chanana said the reading could give the RBA reason to postpone rate cuts but was unlikely to put rate hikes back on the table given the easing of the Australian labor market and consumer pressure.
Still, the money market’s implied odds of the RBA raising rates in September rose from 12 percent to 20 percent after the report, according to CommSec economist Ryan Felsman.
“Traders now think rate cuts are off the table until at least mid-2025,” Felsman wrote.
With Stage 3 tax cuts taking effect in just a month, the influx of extra money to millions of people has economists worried that inflation will rise even further.
Treasurer Jim Chalmers (pictured) downplayed Wednesday’s price rise figures as monthly reports are less reliable than quarterly ones.
But Treasurer Jim Chalmers downplayed Wednesday’s inflation figures, saying monthly reports on price increases are less reliable than quarterly reports.
“As we have said many times, the monthly inflation indicator can be volatile and less reliable than the quarterly measure because it does not compare the same goods and services month to month,” Chalmers said.
Meanwhile, shadow treasurer Angus Taylor criticized the federal government for increasing spending as Australians face “one of the highest and most persistent inflation rates of any advanced economy”.
The latest ABS data found that Australian consumers have responded to rising interest rates by cutting back on spending.
Retail spending in April increased 0.1 percent compared to March after a drop of 0.4 percent in March and an increase of 0.2 percent in February.
“Underlying retail spending remains weak and a small increase in turnover in April was not enough to offset the fall in March,” said Ben Dorber, head of retail statistics at ABS.
“Since early 2024, the retail turnover trend has remained stable as cautious consumers reduce their discretionary spending.”
Shadow Treasurer Angus Taylor (pictured) criticized the federal government for increasing spending as Australians face “one of the highest and most persistent inflation rates of any advanced economy”.
Clothing sales fell 0.7 percent for the month and food sales also took a significant hit compared to March, which was inflated due to an early Easter.
“Consumers have reined in their spending in response to a series of cost-of-living pressures, causing retail sales growth to stall for much of last year,” said Sean Langcake, head of Macroeconomic Forecasting at Oxford Economics. Australia. .
‘There is some help on the way for household finances from the May budget, with tax cuts and subsidy payments set to boost cash flow from July.
‘But this is unlikely to be enough to completely lift consumers out of their current slump. “We expect retail sales momentum to remain moderate through 2024.”
