Treasurer Jim Chalmers will be hoping inflation keeps tracking down. Picture: Lukas Coch.
ANALYSIS
Aussie mortgage holders will be holding their breath for the next RBA meeting on the 16th of June.
Borrowers will be well within their rights to expect some relief.
After all, surely the RBA moved back to back with three hikes this year with the aim to make further increases unnecessary.
Even as forces outside of our control continued to push inflation higher. Oil prices, global conflict and international supply challenges aren’t the sort of things that can be brought under control by someone in the south pacific eating less smashed avocado.
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But none of that matters to the RBA. As they keep reminding us, they have one job and that’s to get the inflation numbers back towards their target band of 2-3 per cent.
The only way they can do this is by manipulating the official cash rate.
But based on the numbers around today, if they were to hike in June, they’d surely be doing it for fun.
So what are the numbers they do care about?
Consumer Price Index (CPI)
Last month, the consumer price index (CPI) came in at 4.6 per cent, up from 3.7 per cent the month prior. Alarm bells were ringing for some, but this was the first time the effects of the conflict in Iran had filtered through into the inflation numbers. Much of that inflation was contributed to by the rise in oil prices and disruption to the supply chain.
Importantly, the ‘trimmed mean’ inflation, which takes certain monthly anomalies out of the equation, remained steady at 3.3 per cent.
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This month, the headline CPI came in at 4.2 per cent, a solid fall of 0.4 per cent month on month.
Trimmed mean inflation was 3.4 per cent, so up 0.1 per cent month on month.
These numbers mean there is no need for a rate hike.
Construction costs have been problematic for inflation numbers.
Numbers within CPI
One of the stickier problems for the RBA has been the ‘housing’ category of inflation.
This category is weighted the most heavily of all categories in the overall CPI basket, at more than 20 per cent of overall inflation. Housing inflation is largely made up of construction costs and asking rents, both of which have been steadily increasing recently and show no signs of turning around anytime soon.
Inflation for housing last month was at a worrying 6.5 per cent, up nearly a full percentage point from the previous month.
Even if the rest of the CPI was within target, housing would still be an area of concern for the RBA.
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Today’s numbers have housing at 6.3 per cent, still too high but the first downward trend for this number in many months.
All signs point to a hold decision on 16 June, when the RBA next meets. Picture: Monique Harmer
Unemployment
Australia has enjoyed low unemployment for some time. For months, the number hovered just above 4 per cent. While homeowners were calling for further rate cuts last year, economists suggested unemployment would need to rise to about 4.5 per cent for the RBA to consider another cut.
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Since then, there have been three rate rises and, until now, unemployment has barely budged.
Last week, however, the newest ABS labour force figures were released. And wouldn’t you know it, unemployment has jumped to hit that 4.5 per cent number.
While a rate cut is not going to happen, it’s hard to imagine justifying another hike with those job numbers in mind.
Over to you Governor Bullock and the RBA board.
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