Quarterly CPI analysis: Inflation under control, but still above the RBA forecast

Today’s June quarter inflation figures confirm that price pressures are continuing to ease. Headline inflation is now at 2.1 per cent over the 12 months to the June quarter, down from 2.4 per cent in the March quarter. Trimmed mean inflation has now fallen to 2.7 per cent on an annual basis. While this is firmly within the Reserve Bank’s target range, it is slightly above its forecast. The result adds weight to growing calls for rate relief, especially with wages growth stabilising and household budgets under pressure.  

Rate relief on the horizon?

Despite the downward trajectory of inflation, the RBA chose to hold the cash rate at 3.85 per cent in July. With inflation clearly moderating and monetary policy already restrictive, holding rates steady may now risk constraining growth more than necessary. Today’s inflation figures may give the RBA the confirmation it needs to continue the cutting cycle, but there may also be lingering concern that it is still higher than forecast.  

Mortgage stress reaches new highs

Recent data from Roy Morgan highlights that mortgage stress is rising sharply, with 28.4 per cent of mortgage holders now considered ‘at risk’. This is the highest level since January, despite the rate cuts delivered earlier this year, driven not just by interest rates but by larger loan sizes and elevated property prices. While monetary policy alone can't solve all pressures facing households, with inflation contained, the RBA has room to act and ease the burden on those most affected.  

Impact of RBA rate cuts

If the RBA moves in August, the benefits will be uneven. Mortgage holders would see some relief, but savers may see returns fall as banks tend to adjust deposit rates more quickly than lending rates.  

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