Today's quarterly CPI figures crucial to central bank's next move
An increase in the Reserve Bank of Australia’s (RBA) cash rate can be expected if underlying inflation stays above target, an economist has warned.
With the September quarter Consumer Price Index (CPI) data due today, David Koch (pictured top), economic director at Compare the Market, said the central bank will be closely monitoring the numbers, which could determine whether rates are increased or held steady in the coming months.
“The September quarter CPI figure is the one to watch,” Koch said. “Unemployment is on the rise, which is a warning sign that the RBA may need to cut rates and get the economy moving again.
“But if underlying inflation (that’s the trimmed mean) comes in at 3% or above, the Reserve Bank may have no choice but to raise rates. That is the nuclear option. At this stage, they really could go either way.”
Recent monthly CPI data showed headline inflation at 3%, but Koch noted that the quarterly release would provide a clearer view of the pressures influencing inflation, including export demand and global economic trends.
“We’ve had a couple of back-to-back monthly CPI data figures come in slightly higher than expected, which is why we saw a hold on rates last month,” Koch said. “The RBA has to be so careful right now. It’s a bit of a balancing act and all about keeping that inflation figure inside the target rate.”
Koch referenced Reserve Bank governor Michele Bullock’s recent comments, warning Australians not to assume inflation will continue to fall. “She’s been uncertain for weeks. If we get a number like 3.2 or 3.3%, the RBA could increase rates to bring inflation back under control,” he said.
“It’s 50/50. If inflation comes in around 2.5%, we could see a cut. But anything higher will make the RBA cautious and anything above 3% could trigger a hike.”
Interest rates were lowered by 0.25 percentage points in February, May and August this year. Two RBA board meetings remain before the end of the year, leaving the door open for further changes.
According to Koch, an additional rate reduction in 2025 could ease pressure on household budgets, but also advised borrowers to consider negotiating with lenders for better rates. “Switching could deliver better relief than a standard RBA rate cut because the difference between rates across lenders can be enormous,” he said.
“The average variable rate is about 5.75%, but we have rates as low as 5.34%. Meanwhile, there are two-year fixed rates around 4.75% – that’s equivalent to four RBA rate cuts. This could be a great option for borrowers who are willing to fix their rate. If you can lock in a full percentage point difference for even six months, you could be ahead. Don’t wait for the RBA. Take control of your own rate.”
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