At long last inflation data has given interest rate worriers some good news. Economists are increasingly thinking that the rate rising misery might be over. Now that thinking becomes whether we could see a cut some time this year. And someone with RBA experience is speculating that Cup Day on the first Tuesday in November could bring exactly that!

So, why has there been this come about? Well, despite the headline inflation number increasing from 3.6% in the March quarter to 3.8% in the June quarter, the more important measure of “underlying” inflation fell for the sixth quarter in a row. What happens to underlying inflation is more impactful on the Reserve Bank’s thinking on what they should do with rates.

By the way, economists like AMP’s Shane Oliver thought a headline annual inflation number of 4.1% and a June quarter rise of 1% would have kept the RBA on the sidelines with rates, so this data drop was a ripper!

Also, economists expected a headline inflation rise because this can be a volatile statistic affected by short-term or one-off price rises, but the trimmed mean measure captures the underlying trend for core inflation. The fact that this fell from 4% to 3.9% was a positive sign that 13 interest rate rises (and the fact that more borrowers have gone over the mortgage cliff being forced to migrate from low fixed rates to high variable rates) are now hurting spending to help prices fall.

Remember, the RBA wants this trimmed mean measure in the 2-3% band. Therefore, we need to see more falls in coming quarters before cuts could be expected but this is a step in the right direction. “The CPI release confirms that inflation is as sticky as expected but, importantly, is no higher than the RBA had forecast it to be,” BDO Economics partner Anders Magnusson told abc.net.au yesterday. “Today’s release has not changed our forecast that the next movement by the RBA will be a rate cut in early 2025. We don’t believe that the RBA will raise the cash rate next week, but the ongoing cost-of-living struggles for many Australians will likely continue until early next year.”

The Magnusson call on a rate cut next year will rest on the run of economic data in coming months but if the economy continues to slow faster than expected, a rate cut later this year is not impossible. However, if it’s vice versa, the RBA could raise rates again. I doubt this scenario, as I pointed out yesterday that there were signs the economy is on a notable slide.

In terms of reactions to this data drop, the one I like most is that from Luci Ellis, who’s a former RBA Assistant Governor but now is Westpac’s Group chief economist. Ellis said it now looks increasingly likely that the RBA would cut interest rates in November. “Another quarter of inflation data should be enough to convince the RBA Board that disinflation is on track and that inflation will be back into the target range on the desired timetable,” she wrote in a note after the numbers were released.

For a few months I’ve been arguing that a Cup Day rate cut can’t be ruled out, so I hope the tip by Ellis turns out to be on the money. Given her RBA history, she could have the good oil on what’s ahead for interest rate worriers!