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The Reserve Bank of Australia (RBA) has acted in line with expectations and kept interest rates on hold at 4.35%.
This comes after the country just last week got its latest quarterly inflation data.
Consumer Price Index (CPI) growth came in at 2.8% reflecting energy rebates and fuel price declines; while Trimmed Mean Inflation (TMI) remains higher at 3.5%.
While headline inflation will decline for a time, TMI – also known as underlying inflation – is more indicative of inflation momentum, and it remains too high.
The ASX200 sold off after last week’s CPI data release, perhaps counterintuitively – but it’s evidence most analysts and traders were paying closer attention to TMI rather than its more volatile cousin CPI.
TMI is, for all intents and purposes, Australia’s answer to “core inflation.”
But while it’s still more embedded than what CPI suggests – there’s still reasons to be optimistic. Don’t forget that when money markets pushed RBA rate cut expectations into 2HCY2025 last week, that’s right about when the RBA has been consistently telling Australians it will start cutting rates.
So, in a way, it’s only a shock move if you haven’t been paying much attention – or putting faith into – what the RBA says in its guidance.
A hot economy slowly cooling
A recent note from UBS pointed out overall resilience in the Australian economy.
Analysts for the investment bank noted September home loan data was up nearly +19% versus this time last year (YoY) at the same time dwelling prices moderated to +6% YoY in October.
This overall tone of a hot economy slowly cooling down was backed up by jobs ads data from elsewhere that show advertisements remain higher than pre-COVID.
The context here is the jobs ad market has, at the same time, fallen from its 2022 peak – suggesting a slowly cooling labour market (which would lend itself to a ‘soft landing’ scenario.)
Worth considering: Unemployment in Australia has been hovering around 4% for a good while, now – historically low.
Expect economics and politics to marry
Analysts from the investment bank predict the ALP will deliver its third surplus in a row next year, which has gained a new kind of currency given that Albanese started campaigning over the weekend.
Slashing student HECS/HELP debt and taking the same knife to green tape are some of the first promises we’ve heard from the Labor leader.
Why exactly normal Australians in a cost of living crisis would care to hear about environmental regulation first and foremost remains unclear.
(It would also probably age poorly if we have a particularly bad bushfire season this summer.)
Cost of living front of mind
At any rate – the interest rate is most likely set to become more and more politically charged in the months ahead.
Following the Liberal National Party (LNP) victory in the Queensland state election – a campaign rife with American cultural overhead given abortion became an issue – it appears the ALP are waking up and starting to mobilise for the 2025 election.
So will the RBA cut before around June next year?
Bar a shock spike in unemployment, or a shock fall in housing prices nationally, it appears unlikely in my view. But we’re probably going to hear a lot more about inflation for a while yet.
And, like almost every other one of the 44 countries that have had elections in 2024 – broadly, the cost of living remains a key focus for most people on Earth right now. Those parties doing a good job of messaging on that issue appear to be better off, no matter where you are.
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