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How lawyers can interpret ‘disappointing’ inflation figures
While recent figures indicate inflation is continuing to fall, a slowing rate of decline in the March quarter is setting the stage for a “cautious” RBA meeting in May – and lawyers with mortgages and practitioners planning to invest need to be prepared.
Jerome Doraisamy and Rhea Nath
Stubborn service cost pressures have seen the consumer price index (CPI) rise 3.6 per cent in the 12 months to March 2024, according to the latest monthly CPI indicator from the Australian Bureau of Statistics (ABS).
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CPI climbed 1 per cent over the quarter, up from 0.6 per cent in the December quarter, and defied forecasts of 0.8 per cent from economists.
Much of the rise was attributed to education (5.9 per cent), health (2.8 per cent), housing (0.7 per cent), and food and non-alcoholic beverages (0.9 per cent), with price rises for tradable goods continuing to ease at a faster pace than non-tradable goods as consumers pull back on their discretionary spending.
Still, the quarterly data came in lower than the December quarter when it was 4.1 per cent.
For AMP’s chief economist, Shane Oliver, the ABS’ latest figures offer both good and bad news for the Australian economy, particularly regarding potential rate cuts.
“The good news is that inflation is continuing to fall from its high [of] around 8 per cent at the end of 2022, which still points to rate cuts ahead,” he told Lawyers Weekly’s sister brand, InvestorDaily.
“The bad news, though, is that the rate of decline slowed again in the March quarter, with both headline inflation at 3.6 per cent year on year and underlying inflation at 4 per cent year on year coming in slightly higher than expected due to strength in services prices – for rents, education and insurance in particular.”
With the Reserve Bank of Australia (RBA) slated to meet in two weeks, namely 6–7 May, Oliver expects they will be “still waiting for confidence that inflation will return to target in a reasonable time frame”.
“[The RBA] is likely to signal this at its meeting,” he said.
“Flowing on from this, we have pushed out our expectation for the start of rate cuts from around mid-year to year end.”
In conversation with Lawyers Weekly, Legal Home Loans general manager Aylin Unsal (pictured) said the latest inflation figures are “disappointing”, as they decrease the likelihood of seeing a cash rate cut in the coming months.
Prior to the latest figures, she said, “the soonest we were anticipating any rate cut was September 2024 – this update could mean we are unlikely to see a cut within the calendar year”.
“The positive side is that we foresee a low chance of a further hike,” Unsal mused.
“Rather, we believe there is a higher likelihood that the cash rate will be held as is for the next few months. It remains to be seen how this news will influence the RBA, and we will await their commentary.”
If any lawyers are waiting on a cash rate to make decisions regarding property, Unsal went on, Legal Home Loans’ best advice is to always make decisions based on the current reality.
“Speak to your broker to gauge your borrowing power and discuss options, and consider a variable interest rate set-up,” she suggested.
“That way, if any rate cut does occur, you would still benefit from a reduction in your mortgage repayments.”
