As I’ve been saying, there will be no interest rate cut until 2025. Let’s take a closer look at the new CPI figure …
Before the latest quarterly CPI figure was released, financial markets had factored in a 30 per cent chance of an interest rate cut at the December Reserve Bank board meeting. After the September quarterly CPI, markets have cut that possibility to a 20 per cent chance.
Here’s why.
The CPI figure which counts
Don’t be fooled by the headline CPI figure which rose by 0.2 per cent for the quarter. This was below the expected 0.3 per cent, which produced an annual rate of 2.8 per cent – which is within that Reserve Bank target range needed to cut rates.
The RBA ignores the headline CPI and prefers the “trimmed mean” which takes out all the volatile and one-off factors like state and federal governments artificially reducing energy prices though subsidies to consumers.
That trimmed mean for the quarter was 0.8 per cent and annually the rate dropped from 4 per cent to 3.5 per cent … still above the target range. That’s why virtually all economists are saying no rate cut until at least the February RBA board meeting.
Short-term fixes addressed
The large gap between the quarterly change in the headline and trimmed mean CPI reflects a big 17.3 per cent decline in electricity prices due to federal and state government energy rebates.
The annual rate of goods inflation is running at a much softer pace than services inflation. The annual change in services inflation was boosted as a result of the July 2023 Child Care Subsidy dropping out of the annual calculation.
There will be a similar impact when the energy rebates stop and that’s why the RBA is wary of these short-term factors.
Insurers are not helping
The big sticking point, which is keeping the CPI higher than the RBA would like, continues to be rents and insurance premiums.
While rental increases are starting to slow, they remain high. As for insurance premiums, I have to say, the size of the premium rises is scandalous. There have been no natural disasters to justify this and, as I’ve pointed out a couple of months ago during earnings season, the major commercial insurers are making huge profits.
So it looks as though those premium increases are just going straight to the bottom line of insurance company profits.
Now more than ever, as consumers, we have to be checking our insurance coverage and comparing it with others to make sure we have the best deal.
A good time to take a road trip
On the plus side of the CPI figures, there has been the big drop in petrol prices. Have a look at this image – unleaded petrol prices are near a two-year low. Make the most of it.
Inflation still too high
Just to put our inflation rate in perspective, this is why the rest of the world are starting to cut interest rates. Our inflation rate is still above our major trading partners and needs to come down for a rate cut to follow.
