The central bank should hold rates steady in light of new ABS numbers, peak body says
The Real Estate Institute of Australia is calling on the Reserve Bank to pause its rate-hiking program in light of new data from the Australian Bureau of Statistics.
The ABS data shows that the Consumer Price Index (CPI) rose 7.4% over the 12 months to January.
“This is down on the annual figure for the year to December 2022 of 8.4% and below both the budget forecast and the RBA’s forecast, and points to a slowing down in the rate of increase,” REIA president Hayden Groves said. “When ABS excludes the volatile items of fruit and vegetables and automotive fuel, the annual increase is 7.2% – down on the 12 months to December figure of 8.1%.”
The monthly figure is down 0.45 from December’s and down 0.1% in seasonally adjusted terms, Groves said. That’s the first decrease in the seasonally adjusted monthly figure since February 2021.
“The most significant contributors to the annual increase in the January monthly CPI indicator were housing (9.8%), food and non-alcoholic beverages (8.2%) and recreation and culture (10.2%), with the annual increase for the housing group lower than December’s 10.1%,” Groves said. “Rents continued to rise with a monthly increase of 0.7% and an annual increase of 4.8% compared to the 12 months to December of 4.1%.”
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GDP figures released by the ABS also showed a slowdown in the Australian economy’s momentum. While GDP rose 0.5% in seasonally adjusted terms in the December quarter and by 2.7% for the year, growth has slowed in each of the last two quarters.
Groves said the figures showed that it was time for the RBA to hit pause on its program of rate rises.
“While I understand the RBA’s commitment to making sure high inflation is not entrenched, the flip side of this is the risk that the economy will grind to a halt,” he said. “At the board’s own admission, monetary policy is a blunt instrument that takes more than a year to work its way through the economy.”
In the meantime, Groves said, homeowners are suffering under the weight of nine consecutive rate hikes.
“The manipulation of mortgage interest rates as the main means of discouraging consumer spending puts an unfair share of the burden on home buyers,” he said. “With clear signs that the CPI peaked late last year, it is time for the RBA to pause on interest rate hikes at its meeting next week and wait for further evidence of the lagged impact that past rate increases have had.”
The consensus, however, is that the central bank will raise rates at least a few more times – an outcome the RBA has all but guaranteed, with governor Philip Lowe saying last month that Australians should expect more rate hikes.
Westpac recently predicted that the cash rate, currently at 3.35%, would peak at 4.1% in May, then hold steady until the RBA begins reducing rates in 2024.
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