Headline inflation rose just 2.8% over the 12 months to September, new Australian Bureau of Statistics (ABS) data released on Wednesday reveals.
That sees it squarely in the RBA's target range of 2% to 3% on an annual basis just weeks out from the RBA board's November meeting, where it will decide whether or not to cut the cash rate from its 12-year high.
"The September quarter’s rise of 0.2 per cent is the lowest outcome since the June 2020 quarter fall which occurred during the COVID-19 outbreak and was driven by free childcare,"ABS head of prices statistics Michelle Marquardt said.
But the RBA likely won't be rushing to celebrate - headline inflation isn't the only number they're watching.
Why falling inflation doesn't guarantee a November cash rate cut
The real hurdle is underlying inflation, or trimmed mean inflation, which excludes volatile price swings in areas like fuel and electricity.
This measure still needs to cool further before the bank considers giving mortgage-holders a break.
Underlying inflation fell from 3.9% in the July quarter to 3.5% in the September quarter, which is in line with consensus and RBA expectations but may lead some forecasting a 2024 cash rate cut to renege on their predictions.
CommBank senior economist Stephen Wu recently noted the bank's call for a December rate cut hinged on underlying inflation coming in at 3.4% or less on an annual basis.
All eyes are likely now on the biggest big four bank in anticipation of a new forecast, perhaps one that sits in line with those offered by NAB, Westpac, and ANZ – all of which tip the first cut to come in February 2025.
The cash rate, which directly influences home loan interest rates, currently sits at a 12-year high of 4.35%, squeezing mortgage holders.
A cut would bring broad relief but the RBA may require more concrete signs of slowing inflation, not to mention a cooling labour market, before it acts.
In the meantime, many home loan lenders – including, most recently, ANZ – have begun cutting fixed rates amid expectations a cash rate cut won't be too far away.
What a cash rate cut could mean for home loan holders
With inflation edging lower, but not quite enough to lock in an interest rate cut, homeowners may have found themselves in a state of suspense.
Though, many home loan holders appear to be managing better now than they were before the implementation of the Stage 3 Tax Cuts.
More than 1.7 million Australians were 'at risk' of mortgage stress in September - 2% fewer than were in June, Roy Morgan data reveals.
"The figures for September 2024 represent an increase of 917,000 [mortgage holders] considered 'at risk' since the RBA began raising interest rates in May 2022," Roy Morgan CEO Michele Levine said.
Though, while interest rates remain high, strength in the jobs market has likely helped many households abate mortgage stress.
"It is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered 'at risk' – the largest impact on whether a borrower falls into the 'at risk' category is related to household income – which is directly related to employment," Ms Levine said.
"The employment market has been strong over the last year and this has provided support to household incomes which have helped to moderate levels of mortgage stress over the last year."
The RBA's dual mandate means it must balance reducing inflation against maintaining jobs.
As inflation and unemployment often move in opposing directions, the central bank continues to face a delicate balancing act.
Image by Maria Lin Kim on Unsplash
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