The Reserve Bank of Australia looks set to keep the cash rate on hold after its next meeting on the 15th and 16th of June, following a mixed bag of CPI results out today.
Headline inflation in April dipped to an annual rate of 4.2%, down from 4.6%, with the halving of the fuel excise. Automotive fuel prices fell 7% between March and April after surging 32.8% in the previous month.
Diesel prices, however, climbed 14% on average over the same period, while higher oil prices passed through from the Iran war, continued to flow through to freight-heavy goods and services.
Trimmed mean inflation, which strips out much of the volatility and is the Board’s preferred measure, accelerated for the first time this year to an annual rate of 3.4%, according to the monthly dataset in seasonally adjusted terms.
Consumer Price Index | ||
|---|---|---|
Month | Headline | Trimmed |
January | 3.8 | 3.3 |
February | 3.7 | 3.3 |
March | 4.6 | 3.3 |
April | 4.2 | 3.4 |
Source: ABS Monthly Consumer Price Index.
Big four banks all expect rates to hold in June
All four big bank economic teams are forecasting the RBA to keep the cash rate unchanged at 4.35% on 16 June, however, only CBA and ANZ expect it to be the end of the rate hiking cycle.
Current big four bank | ||
|---|---|---|
Bank | Forecast | Cash rate - |
CBA | No | 4.35% |
Westpac | 2 x 0.25 in | 4.85% |
NAB | 1 x 0.25 | 4.60% |
ANZ | No | 4.35% |
How Australia’s inflation and cash rate compare around the world
Australia’s inflation woes are more pronounced than many of its counterparts despite the three back-to-back cash rate hikes this year.
Inflation rates | |||
|---|---|---|---|
Headline | Core | Cash | |
Australia | 4.2% | 3.4% | 4.35% |
United | 2.8% | 2.5% | 3.75% |
United | 3.8% | 2.8% | 3.50% - |
Canada | 2.8% | 2.0% | 2.25% |
New | 3.1% | 2.7% | 2.25% |
European | 3.0% | 2.2% | 2.15% |
Japan | 1.4% | 1.9% | 0.75% |
Source: Canstar. Notes: ECB refers to the main refinancing options.
Lowest rates post-May rate hike
The RBA might be set to pause but borrowers should not mistake this as the end of the hikes entirely.
Today’s inflation results reconfirm an uncomfortable truth: core inflation has made no progress over the last 12 months.
Borrowers should use this time to do a health check on their mortgage and, ideally, run the numbers on switching to a more affordable rate if they can.
Lowest variable rates on | ||
|---|---|---|
| Rate | Deposit |
LCU | 5.69% | 5% |
Pacific | 5.74% | 40% |
G&C Mutual / | 5.80% | 5% |
Virgin | 5.84% | 20% |
Teachers | 5.84% | 40% |
Source: Canstar. Note: rates are variable for owner-occupiers paying principal and interest. Other lending criteria may apply. Excludes lenders that are yet to move following the RBA May hike.
Australian households already hammered with hikes
Canstar's Data Insights Director, Sally Tindall, says, “A June rate hold was already looking likely after the RBA made clear in the minutes of the last Board meeting that they were looking for an opportunity to pause and take stock.”
“Australian households have already been hammered with three cash rate hikes, the last two of which still haven’t hit some borrowers’ bank accounts.
“While motorists are finally getting some relief at the bowser, thanks to the temporary fuel excise cut, the RBA will be well aware that plenty of underlying price pressures are still bubbling away.
“The conflict in Iran is already pushing up costs for businesses, particularly in transport and construction, and we’re starting to see those pressures trickle through to consumers in the form of fuel surcharges and higher prices at the checkout.
“The uptick in unemployment recorded in April to a more uncomfortable 4.5 per cent won’t be enough to rattle the RBA, particularly considering its one result in just one dataset, however, it does add to the growing list of reasons for the Board to grab the break while it can.
“That all said, trimmed mean inflation remains stickier than a toffee apple. In the last 12 months, the only moves it’s made were in the wrong direction.
“If the Board does pause in June it won’t signal the end of the hikes. If the current cash rate setting doesn’t get inflation moving back in the right direction, the RBA will have no option but to ratchet up the pressure even further.
“If your finances aren’t prepared for another couple of rate hikes, now is the time to start making those preparations.”
