Inflation eases ahead of RBA cash rate decision

Customers concerned about interest rates should ask us for help, says broker

Inflation eases ahead of RBA cash rate decision

Following three consecutive quarters of annual rises, inflation appears to have moderated, with the latest ABS figures showing an annual rise of 6.9% – which is 0.40% lower than the 12 months to September.

Inflation, as measured by the Consumer Price Index (CPI), rose 6.9% in the 12 months to October, ABS figures released on Wednesday show.  It follows an annual rise of 7.3% over the year to September 2022, with inflation up 1.8% over the September quarter.

ABS,  which now reports CPI inflation figures monthly, said although the annual movement dropped in October, CPI inflation remained high.  The biggest contributors to the October rise were new dwellings (up 20.4%), auto fuel (up 11.8%) and fruit and vegetables (up 9.4%).

The latest inflation figures might provide a reprieve for mortgage holders from ongoing escalating interest rate rises when the Reserve Bank meets on December 6 to decide on the official cash rate.

In November, the RBA said it expected inflation to peak around 8% this year. With the effects of seven back-to-back official cash rate rises now trickling through to borrowers , the softer than anticipated inflation result in October “suggests the risk of a pause” by the RBA has opened up in December, Westpac Business Bank chief economist Besa Deda said. 

High levels of building construction activity and ongoing labour and materials shortages contributed to the rise in new dwellings, ABS head of prices statistics Michelle Marquardt said. The federal government’s temporary cut to the fuel excise ended on September 29, which saw the fuel tax rate of 46c per litre reinstated, up from the temporary cut to 22c per litre from March 30. 

Clarifying the annual inflation figure of 6.9% in October, Marquardt said that “expenditure weights” applied to the standard CPI basket of goods and services were updated in October. The update resulted in several changes, the most significant being international travel, which Marquardt said increased from 0.1% of the CPI basket, to 1.9%.

"Typically, annual updates to the weights have limited impact on the overall CPI. This year, however, the significant changes in spending patterns over 2021 and 2022 meant that the reweight had a larger impact on the CPI than usual,” Marquardt said. 

The annual movement of the monthly CPI indicator in October, using the previous weights, would have been 7.1%, compared to 6.9% using the new weights, she said. 

Acknowledging that inflation was at the top of everyone’s minds, head of Zinger Finance Rose Renouf (pictured above right), who is also the business manager at Mortgage Supply, said brokers could help to alleviate clients’ financial pressures by proactively negotiating their home loan interest rate.

Renouf said some of her clients were concerned about the impact of rising interest rates on their financial situation, which were exacerbated by recent inflation rises. She was recently asked by a borrower about the best time to review a loan, to which Renouf said her response was to stick with a broker, who can front-foot the review process.

Renouf said there were situations where she had been able to negotiate significant discounts off a lender’s standard variable interest rate, including for clients on interest-only loans.

“Brokers should be proactive in reviewing their clients … we can help clients by making their interest rate a little bit cheaper (for example) 0.25% on a $600,000 loan is quite a help,” Renouf said.

CreditorWatch chief economist Anneke Thompson (pictured above left) said the October CPI result indicated inflation was stabilising. While still high by historical standards, CPI had not increased dramatically on the previous two months, she said.

But Thompson also said inflation data was a “mixed bag”, the latest figures showing challenges for home renovators and builders in particular. She also noted the acceleration in rental inflation, up 3.5% year-on-year. Meanwhile, fruit and vegetable prices increase slowed dramatically in October, up 9.4% year-on-year, down from an annual increase of 17.4% in September.

“[The October] data will give the RBA some comfort that inflation is stabilising, and their monetary policy tightening measures are starting to work,” Thompson said.

But the housing sector had more cause for concern, she said.

“The price rises in that sector indicate a looming shortage of housing over the next few years as buildings become too expensive to commence. That will increase risk for construction companies and the knock-on effects are likely to be felt across the industry,” Thompson said.