A Silver Lining for Australia's Economy
Inflationary Figures Hint at Potential Rate Cuts in 2024
The latest inflationary figures may signal a hopeful prospect for a lower cash rate in 2024. The Consumer Price Index (CPI) for the December 2023 quarter rose by 0.6%, contributing to a modest 4.1% increase over the 12 months leading to December, a notable decline from the 7.8% peak observed in December 2022 and a decrease from the 1.2% rise recorded in the September quarter. The Australian Bureau of Statistics (ABS) highlighted that this is the fourth consecutive quarter of lower annual inflation, with Michelle Marquardt, the head of prices statistics at ABS, noting that the December CPI rise is the smallest quarterly increase since the March 2021 quarter.
As the data unfolds, various experts are weighing in on its implications. Leanne Pilkington, the president of the Real Estate Institute of Australia (REIA), interprets the figures as a sign that the Reserve Bank of Australia's (RBA) 13 consecutive rate hikes since May 2022 are gradually taming inflation. Pilkington also emphasizes the importance of the data for renters, pointing out that rents rose by 0.9% in the quarter and 7.3% annually, slightly lower than the 7.6% annual rise in the September 2023 quarter.
Moreover, the economic landscape painted by these figures is further accentuated by the recent retail spending data, indicating a 2.7% decline in December – the largest December fall on record. Pilkington notes that over the past year, sales have increased by only 0.8%, and when accounting for population growth, the value of sales per capita has sharply fallen.
The declining inflation coupled with subdued retail spending has led experts like Eliza Owen, the head of research at CoreLogic, to anticipate potential rate reductions later in the year. While inflation is still above the RBA's target range, the data is moving in the right direction and, as Owen notes, "falling faster than anticipated." This evolving economic scenario is prompting expectations of interest rate cuts, with potential positive repercussions for the Australian property market.
Experts such as Stephen Koukoulas, an economy specialist, and Louisa Sanghera, the director of Zippy Financial, believe that the RBA may consider rate cuts in 2024 as inflation appears to be under control. Sanghera emphasizes that these reductions "cannot come soon enough for many mortgage holders," particularly as borrowers grapple with the aftermath of the RBA's aggressive rate hikes.
As the debate over when and how many rate cuts will occur continues, the latest economic data paints a cautiously optimistic outlook for Australia's economy, hinting at potential relief for consumers and the property market.