It's the number struggling mortgage holders have been pinning their hopes on since the Reserve Bank of Australia refused an interest rate cut last year. December economic data has confirmed victory in the battle against inflation.

Not only was inflation a miserly 0.2 per cent in the December quarter for an annual increase of 2.4 per cent, but the trimmed mean or underlying inflation rate eased to a three year low of 0.5 per cent, which is an annualised rate of just 2.0 per cent.

Using the monthly data, which are better at capturing turning points and momentum than the quarterly data, and annual inflation came in at 2.5 per cent in December, with the trimmed mean measure was a stunningly low 2.7 per cent.

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While the RBA does not forecast inflation on a monthly basis, its forecast for the trimmed mean inflation rate for the December quarter was 3.4 per cent, which is embarrassingly wrong.

A friendly reminder – the RBA has a target for annual inflation of 2 to 3 per cent which means… VICTORY!

How much will interest rates fall in 2025?

Australians with a mortgage, small business debt or any other type of borrowing, will welcome the inflation data.

In concert with the array of other economic indicators – GDP growth, wages, the terms of trade, global trends – it means that the start of an interest rate cutting cycle is probably just a few weeks away.

And by an interest rate cutting ‘cycle’, it means a series of interest rate cuts from the RBA through the course of 2025 and possibly into 2026.

As the saying goes, interest rate cuts are like cockroaches – there is never just one of them.

While the money markets and investors are fickle at the best of times, at the time of writing this article a total of somewhere between 75 and 100 basis points of interest rate cuts are factored in between now and the first half of 2026.

Such is the fall in inflation that the rate cutting cycle could well be greater than this.

What the news on the labour market, wages and of course inflation to see whether more interest rate cuts are likely over the next 18 months.

As noted in my Yahoo Finance column last week, for each 25 basis point interest rate cut, someone with a $500,000 mortgage holders can expect to save $96 a month in repayments.

This saving is multiplied each time the RBA cuts rates by 25 basis points.

Four 25 basis point interest rate cuts will save approximately $385 a month on a $500,000 mortgage.