13 June 2024
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Will the RBA seriously raise interest rates on these figures?

Peter Switzer
30 May 2024

When the Reserve Bank tries to kill inflation or unemployment it has to contend with a statistical ping pong match that on one hand for one month can show that the central bank is winning, but by the the next month doubts can be raised over the success of the policy.

After yesterday’s less reliable monthly Consumer Price Index reading, it was a loser day for our inflation fighter — the RBA — and it was made a little more worrying because we now have had two disappointing months of inflation readings. This has pushed the optimistic economists’ rate-cut call out to December, while the rates-to-rise mob are now reminding us of their hard-to-cop-forecasts.

As an unofficial referee on this “state of the inflation forecasts” battle, rate risers look to have the upper hand right now over the cutters, but the ‘game’ is not over yet.

My long history of first teaching about economies and statistics, and then commentating on them in the press, has taught me, like a State of Origin footie game, it’s not over until the final whistle is blown and economies, like footie games can turn on a dime!

In case you missed it, this is what we learnt about the latest snapshot on inflation from the April CPI:


  1. Annual inflation in April was 3.6%.
  2. It was 3.5% in March, which says inflation is currently heading in the wrong direction.
  3. The biggest causes of the inflation rise were health insurance premiums spiking and crap weather than drove up fruit and veggie costs.
  4. Not helping was the housing market with rents a major source of upward pressure on the CPI.
  5. The market guess ahead of the release was 3.4%, so it was a 0.2% miss in the wrong direction.
  6. Headline inflation looks to be stubbornly high at 3.5% and the underlying number is 4%.

Given all of the above, the softest interpretation says rates remain at the levels for longer than was hoped, while the hardnosed economists reckon the RBA could be forced to raise rates as early as June 18!

But this is not just a story of two different readings on inflation of one up and another down, it has to be about two types of Australians. There are those with no or little debt, who are spending and ignoring the 13 interest rate rises, and then there are those Aussies under a heap of hip pocket pressure.

In today’s SMH, Rachel Clun and Shane Wright tell us the debt-watcher Moody’s Ratings reports mortgagees are falling behind in their repayments.

“Moody’s Ratings analysis found home loan arrears were rising in every state and territory and in most local areas, with 30-day delinquency rates more than doubling in some suburbs as households struggle to manage cost-of-living pressures,” they reported. “The Moody’s Ratings report found regional and outer-suburban areas had higher delinquency rates compared to inner cities because households in those areas had lower disposable incomes, making them more vulnerable to cost-of-living pressures.”

Sydney and Brisbane had relatively low loan repayment problems but “six Melbourne suburbs made the top 10, with delinquency rates between 3.57 and 5.01 per cent.”

The national number is historically low at 1.72%, but clearly mortgage belt suburbs and towns are hurting, while others are spending like there is no tomorrow!

Be clear on this, another reading like we’ve seen for April and the RBA will be under pressure to slug us with another rate rise.

Interestingly, the RBA has indicated that it expected inflation to rise to 3.8% by June, so April’s 3.5% number yesterday shouldn’t be a big surprise to them. That said, the next two months will be vital for interest rate worriers, and they need to see unemployment rise and the CPI fall to make it easy for the RBA to resist the chorus of economists calling for rate-rises.

This is also a big pressure test for Treasurer Jim Chalmers who told us in the Budget that inflation and interest rates are set to fall by year’s end, and he reinforced this message to me last week, explaining that Treasury’s analysis of household income and spending data pointed to falling inflation.

Clearly, if the pointy-headed number crunchers in Treasury end up being wrong, it won’t be great political news for the Albanese Government.

I don’t think the RBA will raise rates on these figures soon, but we do need to see more indications that inflation will go close to the 2%-3% band ASAP.

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