The latest inflation figures in Australia have raised some important considerations for consumers and borrowers. The annual headline inflation rate dropped to 2.8 per cent, primarily due to substantial government subsidies on electricity and rent assistance. While this may seem beneficial in the short term by lowering power prices, there are concerns about a potential backlash once these subsidies are removed, leading to a full impact on consumers' bills.
The Reserve Bank of Australia (RBA) closely monitors core inflation, which excludes short-term, volatile price changes like those caused by government interventions. The trimmed mean, a key measure of core inflation, remained uncomfortably high at 3.5 per cent, above the RBA's target range. Despite a decline in goods prices, the cost of services like insurance, childcare, rents, healthcare, and haircuts continues to rise, contributing to the persistent high core inflation levels.
The RBA's hesitation to implement a rate cut is influenced by concerns about the strong performance of the domestic economy. With unemployment levels remaining low and ongoing job creation, the RBA is wary of lowering rates, which could further stimulate an already robust economy. Economists and market analysts are predicting minimal chances of a rate cut, with the odds decreasing significantly after the latest inflation data. This environment has implications for consumer spending, as upcoming retail events such as Black Friday and Christmas are seen as critical in driving economic activity.