RBA could pause interest rate hikes after CPI falls to six per cent, economists say

“Oh my God!” That’s how a recent NSW homebuyer reacted when told economists now expect the RBA to hold fire on interest rates after inflation surprised on the low side.

The pace of price rises is finally slowing considerably, leading some economists to scrap predictions of an interest rate hike at next week’s Reserve Bank of Australia board meeting.

The latest consumer price index (CPI) by the Australian Bureau of Statistics shows annual inflation dropped to six per cent in the year through June, down from seven per cent in the 12 months to the end of March.

That was a bigger drop than experts had been expecting.

“We now think the RBA will most likely pause again next week,” said Nomura senior economist Andrew Ticehurst. “We ascribe a roughly two in three probability to a pause, up from roughly one in three prior to these” CPI figures.

ANZ senior economist Adelaide Timbrell said the “downward CPI surprise supports an RBA pause.”

ANZ senior economist Adelaide Timbrell. Picture: Arsineh Houspian

Futures markets cut the chances of a hike from 50 per cent to 30 per cent.

The RBA has raised the cash rate at 12 of the past 14 meetings – an unprecedented level of monetary policy action – in a bid to slow inflation, which neared eight per cent in calendar 2022.

The RBA has said the CPI must be lowered to two to three per cent, arguing high inflation erodes the value of savings, hurts family budgets and makes it harder for businesses to plan and invest.

When recent homebuyer Katie Andrew was told that the CPI had come in lower than expected, reducing the chances of a rate rise next week, she said: “Oh my God! That is great news.”

The 23-year-old nurse bought a house at Springfield on the Central Coast with her partner, Jamie Birchall, 25, in February.

They lived with her parents for seven years to save for a deposit.

New homeowners Jamie Birchall and Katie Andrew from Springfield. Picture: Supplied

“We said we’d never rent,” Ms Andrew said.

Each rate rise is adding $45 a week to their repayments.

To help with their budget, Ms Andrew has been taking extra shifts while Mr Birchall has been working on Saturdays.

The ABS CPI revealed the rate of growth in new home prices was down to 7.8 per cent from more than 20 per cent last year. In another positive, red meat got cheaper. But rental costs were up 6.7 per cent – the most since 2009 – and insurance bills soared 14 per cent.