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The Australian Bureau of Statistics (ABS) announced that inflation has fallen to 2.1 per cent, down from 2.4 per cent in the March quarter.
Trimmed mean inflation, which is an indicator for underlying inflation, is now sitting at 2.7 per cent, down from 2.9 per cent last quarter.
This puts underlying inflation close to the Reserve Bank’s coveted 2.5 per cent range, an encouraging sign that the central bank could cut rates at its next meeting on 11–12 August.
In the minutes from its July meeting, where the RBA controversially opted to hold interest rates, trimmed mean inflation was cited as a major reason behind the decision.
The board wasn’t convinced it was time as underlying inflation remained at the top end of the 2–3 per cent target band.
Now, experts are weighing in on the matter, with many convinced an August rate cut is “certain”.
Westpac chief economist Luci Ellis said the major bank expects a 25-basis-point cut on 12 August, bringing the cash rate to 3.60 per cent.
She also expects further cuts at the November and February meetings, with a May cut likely too.
Indeed’s APAC economist Callam Pickering said now that the trimmed mean inflation is low enough, the RBA can justify cutting rates.
He reflected on the July meeting and believes the decision to hold was “misguided,” “overly cautious,” and “backwards-looking.”
“The RBA will need to cut rates at least another couple of times this year to provide sufficient support to households and businesses, while ensuring that the unemployment rate remains low and we avoid recession,” said Pickering.
Pickering is predicting a cut in August and another by November.
Canstar is extremely confident in interest rate cuts and said the latest CPI data “seals the deal” for an August cut.
It said that while trimmed mean inflation isn’t quite at the 2.6 per cent mark that the RBA forecast, the central bank “should still see this as sustainable progress.”
Each of the major banks is predicting a 0.25 per cent cut at the August meeting. However, this was the sentiment shared by these same experts in the lead-up to the July decision.
What an August cut would mean for borrowers
The same Canstar study unpacked the impact of a 25-bp cut on monthly mortgage repayments.
For a loan of $600,000, the new minimum monthly repayments would be $3,703, saving mortgage holders $90.
For a $1 million mortgage, borrowers’ minimum monthly repayments would be $6,171, savings of $150.
[Related: RBA confirms why it held the cash rate]
