Australia’s inflation rate has come within its target range, but cuts likely won’t come anytime soon

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Australia’s inflation rate has come within its target range, but cuts likely won’t come anytime soon

SYDNEY, AUSTRALIA – SEPTEMBER 05: A person looking at milk products in a supermarket on September 05, 2024 in Sydney, Australia. Australia is currently facing a severe cost of living crisis, with rising prices for essentials like food, housing, and utilities significantly outpacing wage growth, leaving many households struggling to make ends meet.

James Gourley | Getty Images News | Getty Images

Australia’s inflation rate has come within the RBA’s target range in the month of August, easing from 3.5% in July to 2.7%., according to a Wednesday

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from the country’s Bureau of Statistics.

The drop puts the rate below the Reserve Bank of Australia’s target range of 2%-3% for the first time since August 2021.

A day earlier, however, the RBA said it did not see that a rate cut was on the horizon for Australia.

Australia’s hawkish approach appears at odds with the U.S. Federal Reserve. The Fed last Wednesday had moved to cut rates by 50 basis points despite the latest inflation reading in August at around 2.5%, above the U.S.’ central bank’s target of 2%.

On Tuesday, RBA Governor Michelle Bullock stated that while the bank expects inflation to fall, possibly within the target band, this would be due to

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, and the bank is expecting that inflation will climb above the target range when these reliefs expire.

“The point I would make is that if tomorrow we get an inflation number with a two in front of it, so it’s back in the band, that doesn’t mean that we’ve got inflation under control. It doesn’t mean that inflation is sustainably back within the band,” Bullock

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following the RBA’s Tuesday decision to hold its benchmark interest rate at 4.35%.

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said that “headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026.”

Bullock cautioned that she wants to see that inflation is on “a consistent trend down, to the band and it is going to stay in the band.”

Sean Langcake, Oxford Economics Australia’s head of macroeconomic forecasting, wrote in a note after the RBA’s decision that “upcoming CPI data will be muddied by the impact of federal and state government cost of living relief.”

He said that while the relief programs will bring headline inflation to the top of the RBA’s target range, the RBA will be “looking through” these subsidies and focusing on core inflation.

“For the most part, what these subsidies subtract from inflation this year will be added back on next year when government payments are wound back, leaving underlying inflation little changed,” Langcake added.

Langcake said that the decision to cut rates by other central banks around the world has “little bearing” on the RBA, forecasting that it will hold rates steady till the second quarter of 2025.

He writes, “the path of core inflation back to the target range has stalled somewhat, and it is hard to see a major improvement in the near term. We think the bank will need to see three more inflation prints before they are comfortable embarking on an easing cycle.”

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