Aussies hoping for immediate relief from soaring interest rates got some bad news this week. Despite inflation easing slightly, the numbers are still higher than many expected, meaning the wait for a rate cut might stretch longer than anticipated. So, what does this mean for everyday Australians, particularly those struggling with mortgage repayments?
The Inflation Figures That Stopped a Rate Cut
Fresh data from the Australian Bureau of Statistics (ABS) revealed that the annual trimmed mean inflation was 2.6% in August. While it’s a slight dip from July’s 2.7%, it came in above experts’ expectations. The headline inflation, which includes volatile items like food and energy, also spiked to 3%, its highest in 12 months. Unfortunately, for mortgage holders, these figures dashed any hopes of an immediate rate cut.
So, why does this matter? Well, inflation is one of the main factors the Reserve Bank of Australia (RBA) considers when deciding interest rates. Despite inflation trending down, it’s still not low enough for the RBA to take action. As a result, the cash rate, which influences mortgage rates, will likely remain where it is for a little while longer.
Interest Rates: The Waiting Game Continues
AMP deputy chief economist Diana Mousina is holding on to a glimmer of hope, predicting that interest rates could be cut by the end of the year. According to Mousina, despite the current inflation numbers, the overall economy is running below its potential, details Yahoo Finance. This means that, while interest rates are still restricting growth, they might need to be lowered in the future to encourage spending and investment.
She predicts that a total of three rate cuts could occur, with the first one possibly coming as soon as November 2025. However, this will depend on whether inflation continues to trend down in the coming months. But it’s not all smooth sailing. With markets still pricing in fewer chances of a rate cut after the inflation data, things are looking uncertain. The Australian dollar even saw a slight increase after the release of the figures, reflecting the market’s response to the higher-than-expected inflation.
What Does This Mean for Mortgage Holders?
For mortgage holders, it’s a tough pill to swallow. As interest rates remain high, monthly repayments will continue to weigh heavily on household budgets. Unfortunately, despite the hope of relief by the end of the year, it’s clear that Aussies will have to hold on a little longer. If inflation doesn’t fall fast enough, a rate cut in November may not be guaranteed. The RBA has a delicate balancing act ahead, as it attempts to curb inflation without stalling economic growth.
The factors driving inflation are complex. For instance, the end of state government electricity rebates in some states has caused a noticeable uptick in energy costs. This, combined with rising housing and food prices, has contributed to the overall increase in inflation. While it’s good news that inflation is falling, it’s clear that more work is needed to get it down to the RBA’s target band of 2-3%.
