Aussie mortgage holders may see rate cuts as inflation falls

Aussie mortgage holders could experience a potential rate cut as early as February, following new figures that indicate inflation is declining quicker than expected.

The latest underlying inflation print from the Australian Bureau of Statistics (ABS), released on Wednesday, reported a rate of 0.5 per cent for the December quarter.

Yearly trimmed mean inflation has dropped to 3.2 per cent, a decrease from 3.5 per cent in the previous quarter.

This result surpasses the Reserve Bank's forecast of 3.4 per cent for the trimmed mean inflation over the 12 months leading up to December and 0.7 per cent for the final quarter of the year.

Michelle Marquardt, head of price statistics at ABS, commented on the situation: “The trimmed mean excluded price falls in both electricity and automotive fuel this quarter, alongside other large price rises and falls.”

Marquardt added, “As a result, trimmed mean annual inflation of 3.2 per cent was higher than CPI inflation of 2.4 per cent.”

AMP Chief Economist Shane Oliver previously noted to NewsWire that any figure below 0.7 per cent opens the possibility for an earlier-than-expected cut to the official cash rate of 4.35 per cent at the RBA's board meeting scheduled for February 17-18.

Oliver stated, “The RBA needs to see a trimmed mean inflation rate of 0.6 per cent for the quarter or less.” He further explained, “The focus is not on the headline number which we know will be low due to energy rebates.”

Markets had anticipated the quarterly inflation rate would remain below the RBA's expectations, estimating it would fall between 0.5 to 0.6 per cent for the quarter.

Where inflation changed includes a notable increase in recreation and culture, primarily driven by domestic holiday travel and accommodation, which surged by 5.7 per cent.

Higher prices for airfares and accommodation coincided with increased travel demand during the school holidays.

Price increases in alcohol and tobacco were primarily influenced by tobacco prices, which rose by 5.8 per cent due to a 5.0 per cent annual tobacco excise increase and average weekly earnings-based indexation that took effect from 1 September 2024.

Conversely, the most significant decreases were seen in energy prices, largely attributed to government rebates, although the RBA typically ignores these as they constitute temporary measures.

“The 2024-25 Commonwealth Energy Bill Relief Fund rebates led to a large fall in electricity prices this quarter,” Marquardt explained.

She added, “Electricity prices fell by 9.9 per cent in the December 2024 quarter, following a substantial drop of 17.3 per cent in the September 2024 quarter.”

Marquardt noted, “Without the rebates, electricity prices would have risen 0.2 per cent this quarter.”

New dwelling prices also saw a slight decline, marking the first quarterly fall since June 2021, while automotive fuel prices dropped 2 per cent in December following a 6.7 per cent decrease in September.