A sigh of relief for homeowners as inflation comes in under forecasts

Nervous home owners appear to be heading for some interest rate relief with economists tipping the Reserve Bank will keep them on hold when it meets next week.

The RBA will be pleased with this week’s inflation figures, which fell from 5.4 per cent to 4.9 per cent in the year to July compared to June.

It’s the first time inflation has dipped below 5 per cent since 2021 and eases the pressure on the central bank to keep lifting rates.

“This is an encouraging result but we know Australians are still under the pump,” Treasurer Jim Chalmers told the media this week.

“It’s pleasing to see inflation is moderating but we know it will remain higher than we’d like for longer than we’d like.”

In response, economists are forecasting interest rates to again stay on hold for another month, giving much needed relief to mortgage borrowers who have seen months of successive rate hikes hit their household budgets hard.

“Fears of entrenched high inflation and permanent sticky prices have not eventuated,” AMP deputy chief economist Diana Mousina told Seven West Media.

“Unless wages growth surprises to the upside or inflation starts heading up again . . . interest rates are likely to remain unchanged throughout the rest of 2023.”

EY senior economist Paula Gadsby also weighed in, adding to speculation that rates won’t be going anywhere next week.

“This cooling of inflation is further evidence that rate hikes are working, and the Reserve Bank will be pleased with its piloting of the economy towards a soft landing,” she said.

“Whether or not that soft landing is accomplished remains to be seen.”

While the broader economy is experiencing a slowdown in inflation, rents, insurance premiums and power prices are all still trending upwards.

The monthly figure of 4.9 per cent was lower than the 5.2 per cent most economists expected and RBA governor Philip Lowe is expected to stay put on rates in his last meeting as governor before Michele Bullock takes over.

While the Reserve Bank is finally having some success on the inflation front, it is still wrestling with the hot jobs market, where unemployment sits at 3.7 per cent and labour force participation is sky high.

The RBA wants to see the employment rate cool slightly to help achieve its inflation target, and there are promising signs that the number of job openings has been declining this year, pointing to an increase in the jobless rate in the coming months.

All in all the figures indicate interest rate relief for anxious homeowners as we approach the end of 2023.


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