29/01/2025
2025 Interest rate predictions thanks to lowest inflation since 2020!!
Quarterly inflation data drops further, rate cut hopes rise
by Annie Kane•10:40 AM, 29 Jan 2025
New CPI figures have shown that inflation continues to fall, stoking hopes that the central bank will start its easing cycle next month.
The Consumer Price Index (CPI) has remained within the Reserve Bank of Australia’s (RBA) target range for the second quarter in a row, according to the latest data release from the Australian Bureau of Statistics (ABS).
ABS data released today (29 January) has revealed that the CPI rose by a marginal 0.2 per cent this quarter, taking the annual inflation down to 2.4 per cent in the December quarter, down from 2.8 per cent in the September quarter.
The quarterly CPI figure remains within the RBA’s target band of 2-3 per cent, however, the falling inflation figures have been largely down to government interventions — such as Commonwealth Rent Assistance (the maximum rate for which increased by 10 per cent in September 2024) and energy rebates — rather than natural price drops.
Underlying inflation (designed to reduce the impact of irregular or temporary price changes that can impact the figures) is still slightly higher than the RBA’s target band. For example, the trimmed mean annual inflation sat at 3.2 per cent during the December 2024 quarter, according to the ABS, down from 3.6 per cent in the September quarter.
Michelle Marquardt, ABS head of prices statistics, said: "December quarter’s rise was the same as the 0.2 per cent increase in the September 2024 quarter. These rises were the lowest recorded since the June 2020 quarter when the CPI fell during the COVID-19 outbreak when childcare was free.
“Annually, the December quarter’s rise of 2.4 per cent was down from 2.8 per cent in the September quarter.”
Lenders are generally expecting rate cuts in the first half of this year.
Earlier this month, Australia and New Zealand Bank (ANZ) adjusted its cash rate forecast, saying the RBA will likely cut interest rates by 25 basis points (bps) at its February meeting. Its economists believe that there will be two 25-bp cuts in this cycle (in February and August 2025), taking the cash rate to 3.85 per cent.
The major joined the Commonwealth Bank of Australia (CBA) in its predictions for when a rate reduction will occur.
However, while CBA believes the RBA may cut rates next month, it thinks there will be 100 bps of easing over 2025 (one 25-bp cut per quarter). This would take the cash rate to 3.35 per cent.
Earlier this month Macquarie Bank dropped interest rates on some of its fixed-rate mortgages, in preparation for potential rate cuts in the coming weeks.
There are growing expectations that the cash rate will fall at least once this year, leading to buoyed consumer sentiment towards housing.
The Westpac-Melbourne Institute’s ‘time to buy a dwelling’ index rebounded by just over 10 per cent in January, to 89.9, more than reversing the fall recorded in December and signalling growing confidence among home buyers.
Westpac chief economist Luci Ellis said: “The increase could reflect a combination of the growing view that mortgage rate decreases are coming, and a recognition that housing prices have slowed or even fallen in most population centres.”
New CPI figures have shown that inflation continues to fall, stoking hopes that the central bank will start its easing cycle next month.
