Yahoo Finance Interest rate cut hopes delayed to end of 2025 following bleak inflation data
Monthly Consumer Price Index went up in April to 3.6 per cent and economists are pushing back their forecasts for any home loan relief.
New data about Australian inflation has caused economists to sound the alarm for mortgage holders across the country. With the Reserve Bank of Australia (RBA) recently deciding to hold interest rates again at a 12-year high, many are desperate for a cut.
Forecasts for a drop in the RBA's cash rate have been steadily reshaped this year and the Big Four banks have previously stated there will only be one in 2024. But hot off the back of Australian Bureau of Statistics (ABS) research, that long-awaited cut might not come until the end of next year.
The ABS data showed the monthly consumer price index (CPI) climbed to 3.6 per cent in the 12 months to April, which was slightly higher than the forecasted 3.4 per cent.
Do you have a story? Email stew.perrie@yahooinc.com
Trimmed mean inflation – the RBA’s preferred measure of underlying price pressures which strips out volatile items like petrol – also ticked up to 4.1 per cent.
Economist Warren Hogan believes the only route the RBA will take will be a rate hike unless something dramatic happens.
RELATED
"The inflation is not disappearing, the cost pressures are there, the domestic inflation is there, and it's all up to the Reserve Bank," he said on Sky News Australia.
"If they don't do it, no one else will because the government's certainly not really doing it.
"So I think they're going to go in June. I think it's the only option they've got."
'Rates will remain higher for longer'
Hogan wasn't the only one with a grim interest rate prediction following this week's CPI numbers.
Traders have slashed their rate cut bets, pushing out an expected easing of interest rates until December 2025. Previously a 25 basis point cut had been priced in for May next year.
“The disinflationary process in Australia appears to have stalled out so far this year after encouraging declines over 2023,” Betashares chief economist David Bassanese said.
“The upshot of today’s inflation result is that interest rates are likely to remain at current restrictive levels for an extended period – with little relief likely this side of Christmas.”
HSBC chief economist Paul Bloxham added: “There is a higher chance that the cash rate will be increased in the second half of 2024 than of it being cut."
With inflation picking up further, Capital Economics’ Marcel Thieliant said he didn’t expect the RBA to cut rates before 2025.
“Stalling disinflation means rates will remain higher for longer,” Mr Thieliant said.
RBA warned rate hikes aren't out of the equation
RBA governor Michele Bullock said they wouldn't rule out increasing interest rates from their 12-year high of 4.35 per cent if inflation continued to be stubborn.
“Getting inflation back to target will take time and I think the path will likely continue to be bumpy, we should all be prepared for that,” Bullock added.
“We don’t think we necessarily have to tighten again – but we can’t rule it out. If we have to, we will.
“If we really think that inflation is going to be persistent and significantly above our forecast we will tighten again.”
The RBA wants inflation to be sitting between 2 to 3 per cent before it will consider cutting interest rates.
- with NCA Newswire
Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.
