Market Update: July 2023 – Inflation Trends Downward

Quarterly inflation trends downward, casting doubt on further home loan interest rates hikes.
Inflation trends downward, casting doubt on further home loan interest rates hikes

Bernie Lewis Home Loans have been nervously awaiting the Quarterly Inflation Report from the Australian Bureau of Statistics, and it dropped on Wednesday the 26th of July with some welcome data. Inflation has fallen below expectations giving much-needed relief to those anticipating a rate rise next week.

Annual inflation was recorded at 6.0%, below the RBA’s estimate of 6.3%, indicating that inflation is decreasing at a faster pace than expected. The fall in annual inflation from 7.8% to 6.0% is the fastest 6 month decrease since 2009, excluding the pandemic lockdowns of course. CPI only increased by 0.8%, which is another important metric to relate to interest rate volatility. This should provide the RBA with enough evidence to support holding the Cash Rate at 4.10%.

The main contributors to inflation during the this quarter were rents and international travel. A simplistic view would be to align increasing rents to lack of supply and increased interest expenses for landlords, both of which are caused by a restrictive interest rate market.

This is important news because at its last meeting the RBA advised that they were waiting for this report to obtain a better understanding of where inflation is currently sitting. The RBA would have hoped for unemployment figures to rise, but they have remained stable at 3.5%… signalling that we are in a rare position with falling inflation and steady employment.

Whilst this won’t lead to interest rates dropping anytime soon, it does indicate that we should have faced the worst of interest rates here in Australia and there should be a more positive outlook from here on in. With Dr. Philip Lowe soon winding up his tenure as Governor of the RBA on the 17th of September, hopefully the change in guard will present a better market for Australian home loan customers and those seeking to buy their first home.
Inflation trends downward July 2023