RBA tipped to hold rates after latest inflation data
The Reserve Bank is expected to keep rates on hold in its decision tomorrow with inflation yet to return to its target range, according to the most recent figures.
Recent CPI data from the Australian Bureau of Statistics has reaffirmed economists' predictions that the Reserve Bank will continue to stick by its decision to keep the cash rate on hold until early next year.
The CPI fell to 2.8 per cent in the 12 months to September 2024 from 3.8 per cent, according to the data.
Headline inflation saw a 0.2 per cent rise in the September quarter, which was the lowest outcome since the June quarter of 2020.
The trimmed mean decreased to 3.5 per cent annually, down from 4.0 per cent in the June quarter.
According to BDO, the new inflation number provided a distorted view that should not be interpreted at face value.
“The drop in the September quarter CPI surpasses the RBA’s August forecast of a decline in inflation to 3.0 per cent by the end of this year due to low fuel prices,” BDO said.
“However, these forecasts include state and federal government energy rebates, stage three tax cuts and other fiscal policies, so this does not signal victory over inflation.”
Economists at BDO predicted a September quarter inflation of 3.5 per cent in the absence of fiscal policies, which aligned with the actual trimmed mean highlighted in the ABS data.
BDO forecasted for inflation to drop to 3.0 per cent substantially in the March quarter of 2025 and expected the cash rate to be reduced when the inflation rate for that quarter is published later in 2025.
Franklin Templeton fixed income director, Andrew Canobi, also said there was no reason for the RBA to rush into a rate cut this year.
“The inflation number all but kills whatever glimmer of hope remained of a rate 2024 cut. The headline is artificially low through electricity subsidies of course,” Canobi said.
“Underlying trimmed mean at 0.8 per cent for Q3 24 and 3.5 per cent year-on-year is what matters and whilst inching closer to target isn’t close enough to the 2-3 per cent target.”
Both BDO and Canobi indicated the current condition of the labour market was more reason for the RBA to hold still on the cash rate.
According to BDO, the RBA should have welcomed the continued downward trajectory of inflation amid a balanced labour market that was not sparking inflation.
“The still solid labour market is also telling the RBA there’s no reason to rush into a rate cut,” Canobi said.
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