‘Unnecessarily nervous’: Economists make RBA rate cut predictions

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‘Unnecessarily nervous’: Economists make RBA rate cut predictions

Economists predict interest rates will be kept on hold when the Reserve Bank of Australia (RBA) meets on November 5 despite the consumer price index (CPI) reading likely to show inflation has fallen sharply.

Preliminary expectation is for headline inflation to rise by 0.4 per cent quarter on quarter for an annual rate of 2.8 per cent when the *********** Bureau of Statistics releases its CPI index for the September quarter on Wednesday.

This will be within the RBA’s target range of 2 to 3 per cent growth a year.

But the more important underlying inflation, which the RBA watches as it strips out volatile assets, is expected to rise by 0.7 per cent quarter on quarter, giving an annual reading of 3.4 per cent.

Independent economist Saul Eslake predicts inflation will be cooling but only off the back of government spending.

“The big fall in inflation will almost entirely be attributed to government policy measures, in particular rebates for electricity bills and to a lesser extent commonwealth rent assistance,” he said.

Mr Eslake said the RBA would unlikely have the confidence to cut rates even if inflation fell due to the large role government spending was playing on reducing the figure.

“I have always thought the Reserve Bank wouldn’t cut the cash rate until February 2025 at the earliest,” he said.

Camera IconAussies are unlikely to get the rate cut they are hoping for when the RBA meets in November. Credit: istock

The economist said the RBA didn’t have to cut rates in line with the rest of the world, especially as Australia’s interest rates were lower, its unemployment figures stronger and on aggregate taxpayers were getting the equivalent of two 25 basis point cuts through the revamped stage 3 tax cuts.

AMP chief economist Shane Oliver agreed, also predicting a steady cooling trend, noting Australia’s inflation has lagged behind global surges, peaking later in 2022 and now falling in line with US and *** levels.

“Our base case ******** for the RBA to start cutting in February next year, but a cut in December still can’t be ruled out if September quarter trimmed mean inflation comes in as forecast,” the said in a recent market note.

Meanwhile, Australia Institute senior economist Matt Grudnoff said the case for a rate cut was getting stronger.

“The inflation spike we have seen that was mainly driven on the supply side is coming through the economy with the trend in inflation coming down,” he said.

“The RBA is going to be reluctant to immediately cut because the government is having an impact on the CPI, but I think the trend is there and the RBA should cut sooner instead of later.”

Mr Grudnoff said inflation was usually driven by demand and not supply factors, meaning inflation across the world is usually different. But this time, he said, the supply side impacts had been global and inflation had been almost identical across the world.

“Australia was one of the last to get hit by inflation, so we are one of the last to come out. Countries that entered inflation earlier than us are probably a good guide to where Australia will be in a few months’ time,” Mr Grudnoff said.

data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///ywAAAAAAQABAAACAUwAOw==Camera IconConsumers are still spending. NewsWire / Valeriu Campan Credit: News Corp Australia

“I don’t think the RBA needs to be as nervous as they are at the moment.”

The economists’ calls are largely in line with the IMF World Economic

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released last Wednesday. It revised up its 2025 consumer price projections for Australia from 2.8 per cent in April to 3.6 per cent, as government subsidies, particularly on energy prices, are removed.

These calls match the RBA’s forecast in August when it said headline inflation in Australia was now forecast to decline to 3 per cent by the end of this year, and to 2.8 per cent by June next year, before jumping to 3.7 per cent by the end of the year.

Treasurer Jim Chalmers used his press conference on Monday to talk about Australia’s progress on cost of living, saying inflation had “halved on our watch”.

“We have made really substantial, really welcome and encouraging progress in the ****** against inflation,” Mr Chalmers said.

data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///ywAAAAAAQABAAACAUwAOw==Camera IconJim Chalmers says his government is fighting inflation from every conceivable angle. NewsWire / Martin Ollman Credit: News Corp Australia

“We are coming at this cost-of-living challenge from every conceivable and every responsible angle that we can. We’re rolling out cost-of-living relief in a responsible way, but also budget repair and responsible economic management are really key components of our ****** against inflation.”

Meanwhile, Peter Dutton said Australians would be “horrified” after the International Monetary Fund forecast that Australia would be one of just two advanced economies with headline inflation higher than 3 per cent by the end of 2025.

“If the government had put in place the measures in the last three budgets to bring downward pressure on inflation, instead of upward pressure, *********** families would already be paying less for their mortgage,” the Opposition Leader said.

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