Reserve Bank boss Dr Phil Lowe whose once great reputation has been trashed by his “interest rate rises won’t happen until 2024” blooper, got the great news that his interest rate rises look like they’re working! And media outlets that love to worry us about inflation and house price crashes were delivered another data-driven blow, with a slower than expected drop in house prices!

This has seen the AFR lead a major story today with “Worst of the housing downturn may be over as price falls slow”! And CoreLogic data says the nationwide fall in house prices was only 1% in November, which is the smallest in five years.

Back to the better-than -expected inflation news, here it is in a nutshell:

• The new monthly CPI indicator rose by 0.2% in October to be 6.9% higher over the year.  Both the quarterly and annual pace of inflation slowed.

• The monthly pace of trimmed mean inflation eased to 0.3% a month after hovering around 0.4-0.5% a month since December last year.  The annual rate came in at 5.3%.

• CommSec says “the data reinforces our view that inflation will likely peak in Q4 22.” 

The only negative I’d put to this story is that these are new monthly figures that don’t have the history or credibility of the quarterly numbers. It’s a very recent thing that the ABS put out monthly inflation numbers, just as the Yanks have done for yonks.

That said, the news that inflation looks like it’s slowing and could be peaking in this December quarter is great news for the economy, people struggling higher home loan repayments, households seeing their wages buying less stuff and ultimately the stock market, because share prices are linked to profits that are hurt by inflation, rising interest rates and economic slowdowns.

If these inflation numbers are telling us the truth, then less rate rises are ahead, the loss of jobs will be less, a recession will be avoided and house prices won’t collapse by the doomsday merchant’s call of 30%!

We have to be realistic about monthly economic data but the fact that we saw both inflation and house price falls come in better than expected are two things to crow about. However, we need to see a trend over the next three months that confirms that this news is the sign of things to come and that the RBA’s rate rise policy is really working.

This is how CommSec’s Craig James summed it up: “To be clear, today’s softer than expected inflation print is still running at too high a pace.  But the RBA since May has tightened monetary policy substantially. Tighter monetary policy will work to slow the economy and ease inflationary pressures, albeit with a lag.”

Next Tuesday, the RBA was expected to raise the cash rate by 0.25% and these numbers could make Dr Phil pause on the rate rises. On the other hand, he could give one more rise and then decide to sit back and watch the economic data come in over the next few months to see if this good news is the start of something great for the economy and his reputation!

(On tonight’s TV show, which you can see on this website later today, Simon Pressley from Propertyology.com.au questioned the data that said house prices were collapsing. His insights are very interesting.)