Electricity prices set to jump 18 per cent on unwinding government handouts

A leading bank is expecting a spike in electricity prices until July 2025 putting further pressures on Australians.

A major bank has warned Aussies will be paying more for electricity until July 2025 as state government rebates end, pushing higher prices back on households.

In mixed news for mortgage holders Commonwealth Bank of Australia says the current price of electricity will rise, but they don’t believe it will impact when the RBA will start cutting rates.

In his latest economic update Commonwealth Bank senior economist Stephen Wu said he predicts headline inflation will rise to 2.6 per cent when the November figures are released in early January, due to an 18 per cent lift in electricity prices.

Australia’s inflation rate is set to spike due to rising electricity prices. Picture: NewsWire / Jeremy Piper

“This configuration of a solid lift in headline CPI but a slightly lower core inflation figure predominantly reflects the inflationary impact of the gradual unwind of the electricity rebates. “This unwind will occur through to July 2025, as currently legislated,” Mr Wu said.

The economist said the largest impact will be in November, as the first of two instalments for WA rebates are removed.

Currently eligble households in WA can get $400 energy bill relief from the state government and $300 from the federal government.

“Further large increases are set to occur in Q1 25, driven by the unwind of Qld rebates. The extent of these rebates rolling off is a source of uncertainty.”

But overall this is unlikely to have an impact on the RBA’s next rate decision, with Mr Wu saying trimmed mean inflation, which the RBA watches, will undershoot forecasts.

“Our current point estimate is for 0.6 per cent over the quarter or 3.3 per cent for the year with risks firmly skewed to the downside,” he said.

“It would not take much to see us revise lower our nowcast for the trimmed mean CPI; we have been quite conservative in our translation of the monthly figures into their quarterly equivalent,” Mr Wu said.

Based on inflation falling to below the RBA’s forecast target bank, Mr Wu says the bank will have the necessary conditions to cut rates in February.

Inflatin could fall faster than the RBA is currently predicting. Picture: NewsWire / Jeremy Piper

“Our base case remains for the RBA to commence an easing cycle in February 2025 (i.e. at the next Board meeting). And we look for 100bp of easing over 2025 that would take the cash rate to 3.35 per cent,” he said.

The RBA said in a statement by the board on December’s monetary policy decision, inflation remains above target and they would need to see it sustainably fall before moving on the cast rate.

“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the RBA board said.

“Measures of underlying inflation are around 3.5 per cent, which is still some way from the 2.5 per cent midpoint of the inflation target.”

According to the most recent forecasts published by the RBA they do not see inflation sustainably returning to the midpoint of the target range until 2026.

The RBA governor Michele Bullock said in a statement inflation pressures remain and cost-of-living pressures remain a burden on all Australians.

“We haven’t had a sustained period of high inflation in Australia for more than 30 years. It’s not familiar to people. But it’s one of the key reasons why people are doing it tough and finding it harder to make ends meet,” Ms Bullock said.

“The RBA’s job, our mandate is to keep inflation between 2 and 3 per cent, and to aim at the midpoint, 2.5 per cent. And we use the cash rate which influences interest rates that households and businesses face, to achieve this by curbing the growth of demand across the economy.”

Originally published as Electricity prices set to jump 18 per cent on unwinding government handouts