At next Tuesday’s board meeting, the RBA has no choice but to keep interest rates on hold again at 4.35% .
While last Wednesday’s 2.8% headline inflation figure fell inside of the RBA’s 2-3% target—it’s preferred inflation measure—the trimmed mean only fell to 3.5%. The trimmed mean is a measure of underlying inflation stripping out the biggest price swings.
Rate cuts—not until 2025
This inflation outcome essentially confines any potential RBA interest rate cut to mid-Feb 2025 at the absolute earliest. But how far into 2025 are we going to have to go for interest rate cuts to come?
Temporary Government electricity rebates are distorting headline inflation lower. That is why the RBA looks past core inflation and focuses on the trimmed mean. With an election around the corner in 2025 I’m sure the Government will find a way to extend these rebates.
While the cost of most goods continues to slide, the stickiness of services inflation continues as a real cause of concern for the RBA.
This may sound perverse but a big reason preventing the RBA from cutting interest rates is that Australia keeps on creating a lot of jobs and consequently demand. The unemployment rate remains at a relatively healthy 4.1%. Interestingly almost half of the jobs currently being created are in the ‘care’ economy which are tax payer funded
So what’s it going to take to get a rate cut in Australia?
I’m starting to wonder if the only way that trimmed mean inflation can fall back inside the RBA’s target band of 2-3% is for unemployment to break higher towards 4.5%. Unfortunately this is likely to be as a consequence of the economy operating at stall-speed and heading down.
The Trump Wild Card
With the USA election just around the corner I’m sure our RBA will be keeping a close eye on the outcome. If Donald Trump wins there’s no way he won’t want to be seen as a popularist President. The way to be popular with the electorate is to spend big. Unfortunately spending big leads to inflation, which as we all know, leads to upward pressure on interest rates.
No Choice—RBA on hold again
At next Tuesday’s board meeting, the RBA has no choice but to keep interest rates on hold again at 4.35% .
While last Wednesday’s 2.8% headline inflation figure fell inside of the RBA’s 2-3% target—it’s preferred inflation measure—the trimmed mean only fell to 3.5%. The trimmed mean is a measure of underlying inflation stripping out the biggest price swings.
Rate cuts—not until 2025
This inflation outcome essentially confines any potential RBA interest rate cut to mid-Feb 2025 at the absolute earliest. But how far into 2025 are we going to have to go for interest rate cuts to come?
Temporary Government electricity rebates are distorting headline inflation lower. That is why the RBA looks past core inflation and focuses on the trimmed mean. With an election around the corner in 2025 I’m sure the Government will find a way to extend these rebates.
While the cost of most goods continues to slide, the stickiness of services inflation continues as a real cause of concern for the RBA.
This may sound perverse but a big reason preventing the RBA from cutting interest rates is that Australia keeps on creating a lot of jobs and consequently demand. The unemployment rate remains at a relatively healthy 4.1%. Interestingly almost half of the jobs currently being created are in the ‘care’ economy which are tax payer funded
So what’s it going to take to get a rate cut in Australia?
I’m starting to wonder if the only way that trimmed mean inflation can fall back inside the RBA’s target band of 2-3% is for unemployment to break higher towards 4.5%. Unfortunately this is likely to be as a consequence of the economy operating at stall-speed and heading down.
The Trump Wild Card
With the USA election just around the corner I’m sure our RBA will be keeping a close eye on the outcome. If Donald Trump wins there’s no way he won’t want to be seen as a popularist President. The way to be popular with the electorate is to spend big. Unfortunately spending big leads to inflation, which as we all know, leads to upward pressure on interest rates.
Let’s see!
RBA interest rate meetings scheduled for 2025,
by Boris Sfiligoi
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