The Reserve Bank’s deputy governor has brushed off a surprisingly soft inflation print, reiterating to borrowers they should not expect any more mortgage relief soon.
Inflation figures released by the Australian Bureau of Statistics in early January showed the consumer price index was flat in November, slowing the annual rate from 3.8 to 3.4 per cent.
The figure came in below consensus forecasts of 3.6 per cent and buoyed hopes the central bank would hold off from hiking interest rates in February.
But, talking to the ABC, RBA deputy governor Andrew Hauser said there “wasn’t a lot of news in the data”.
The bank’s view that the likelihood of further rate cuts in the near term was very low, as expressed by governor Michele Bullock following the December rates meeting, remained unchanged, he said.
Want more free local news? Follow Sunshine Coast News on Facebook, LinkedIn and Instagram, and sign up for our FREE daily news email.
“I know that won’t be the message that everyone watching this will want to hear,” Mr Hauser said.
Despite the better-than-expected result, the data has limited utility for the RBA.
The ABS’s relatively new monthly inflation measure lacks the historical background to accurately adjust for seasonal variations.
The key number to watch will be the December quarter trimmed mean, due out on January 28. It strips out volatile items like electricity costs, which have bounced around wildly in recent years due to government energy rebates.
Commonwealth Bank economist Harry Ottley said the November figures put the quarterly trimmed mean at 0.9 per cent, an “uncomfortable number for the RBA” that would force it to raise the cash rate by 25 basis points.
Underlying or trimmed mean inflation remained above the bank’s 2-3 per cent target at 3.2 per cent and sticky components such as rents and dwelling construction costs were still running hot.
That will be of particular concern to the RBA board.
Minutes from its latest meeting in December revealed the board was uncertain about whether the recent inflation spike was driven more by temporary or persistent factors.
If it was the latter, it might be forced into raising rates again.
Judging by worrying growth in shelter components, such as a 0.4 per cent jump in rents for the month and a 0.5 per cent rise in new dwellings, Ms Bullock’s fears about persistent inflation could be well founded.
But Westpac’s Justin Smirk said the November figures meant the December quarter trimmed mean could be even lower than the bank’s standing forecast of 0.8 per cent, which would set the RBA on track to hold rates in February and for the rest of 2026.
Another important indicator for the Reserve Bank will be the first labour force update of the year on January 22.
The RBA board minutes revealed it believed the jobs market was still a little tight.
If the unemployment rate stays at a relatively low 4.3 per cent, the RBA’s fears about capacity constraints in the labour market could be heightened.
AMP economists Diana Mousina and My Bui expect unemployment to rise further this year, given the signal from leading labour market indicators.
Mr Hauser said the outlook for 2026 was uncertain but monetary policy was well placed to respond.
One possible outcome was a continuation of monetary easing in the US, supply chain resilience in the face of tariffs, ongoing government stimulus around the world and the most optimistic hopes for AI turning out to be a true boost the global economy.
“The bad outcome would obviously be that some of these potential political flashpoints, including in Asia, crystallise and become real,” Mr Hauser said.
