Future rate cuts unlikely after inflation data release

The bank’s forecasts for the inflation outlook are for a 0.8 percent increase on January 28. If there is an increase above this, the bank will consider an interest rate increase at its meetings on February 2 and 3.

Reduced inflation averaging has become of great importance as the last few years have led to wild fluctuations in prices. It has become extremely difficult to track inflation accurately.

In Brisbane, for example, electricity prices rose by an incredible 1695.3 per cent in the 12 months to September due to the end of Queensland’s generous energy subsidies. This brought annual electricity inflation down to a still-off-standard 468.5 per cent in the 12 months to October.

NSW’s Independent Pricing and Regulatory Authority recently gave the green light to higher water charges that have caused Sydney’s measure of water and sewerage prices to rise by 19.4 per cent. Water and sewer prices in Perth increased by 2.7 per cent over the same 12-month period.

On an annual basis, public transport fares in Canberra fell 1 per cent in August. As of September, there was an increase of 63.5 percent.

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While the bank’s main focus will be on the figures to be released on January 28, other important data will be released before then, with two of them coming next week.

Employment data released on Thursday and then in late January will provide insight into the relative strength of the country’s employment market. If the statements show that unemployment remains around 4.3 percent and 20,000 to 30,000 jobs are created each month, this will confirm the claim that the overall economy is handling the current interest rate settings without much trouble.

This could mean trouble for mortgage holders when the Reserve meets in February.

But there is noise in the latest jobs reports. Expectations for a rate cut rose after the September report showed a rise in unemployment, but these expectations were quickly reversed after the October report showed the unemployment rate falling.

There is also the situation of the federal budget.

The budget ended last year with a deficit of 10 billion dollars. In his March budget, Chalmers forecast the 2025-26 deficit to rise to $42.1 billion.

While Bullock argued Tuesday that monetary and fiscal policies work together, a $32 billion increase in the budget deficit (the loosening of fiscal policy) poses a problem.

Chalmers will publish its mid-year budget update next week. A larger deficit could pose a problem for the Central Bank. That’s partly why the government this week ended $75-a-quarter energy supplements and why Prime Minister Anthony Albanese spoke on Wednesday about the government’s pursuit of further budget savings.

“Every budget we saved has made a difference. We want to make sure the budget is as good as possible,” he told ABC television.

Some possible factors are beyond the control of both the Central Bank and the Albanian government.

The bank only looked at a half-point rate cut in May due to the expected impact of US President Donald Trump’s “liberation day” tariffs. Shortly after this, markets were predicting that the RBA could cut rates to 2.85 per cent. The same markets now expect the cash rate to be around 4.1 per cent by Christmas next year.

These tariffs are hurting the US economy – Trump this week announced a US$12 billion ($18 billion) aid package for American soybean producers caught in the crossfire of a tariff war between the US and China.

They also had an impact here. One of the fastest growing price points is beef and lamb, with annual inflation for these red meats now rising to double-digit rates. This is partly due to the United States purchasing beef from around the world, including from Australian pastures, the Bureau of Statistics said.

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UBS senior economist George Tharenou, who has done well in choosing the central bank’s interest rate decisions, changed his call on the direction of monetary policy this week. He believes the RBA will raise two rates next year, with the possibility of three.

He said the bank should act now, based on its past reactions to the shortened measure of inflation.

“The RBA has started to raise rates in more recent walk cycles when the average CPI was at 3 per cent year-on-year. This means, based on the RBA’s ‘historical response function’ to inflation outcomes, that the ‘rate hike trigger’ has probably already been met,” he said.