Why mortgage holders can breathe a little easier

Rents continue to climb, bucking the broader trend of easing price pressures. (Photo by William WEST / AFP)

Mortgage holders should be breathing a little bit easier.

There’s now a solid chance the Reserve Bank will hold fire at next Tuesday’s board meeting and keep the cash rate at 4.1 per cent.

The May consumer price figures showed a big drop in inflation from 6.8 per cent in the year to April to 5.6 per cent – miles lower than the 6 per cent predicted by economists.

If Thursday’s retail trade numbers also show a greater slowdown than anticipated in May, a 13th rate rise will surely be delayed by at least a month, by which time governor Philip Lowe and his board will have a quarterly inflation number.

It’s clear one month of good news is not “mission accomplished” in the fight to tame inflation, and some of the details in the CPI report make painful reading: bread and cereal products up 13 per cent in the year; power bills up 14 per cent; rents up 6.3 per cent; dairy prices up 15 per cent; eating out and takeaway up 8 per cent.

Speaking from the Northern Territory, Jim Chalmers was careful to highlight the ongoing pressures on household budgets from high costs of living. The Treasurer was keen to highlight the good news – not least that petrol prices are 40c-50c a litre cheaper than a year earlier – but his caution is warranted.

The Australian Bureau of Statistics noted that taking out volatile items such as petrol, travel and fruit and vegetables, “underlying” inflation ticked lower only from 6.5 per cent to 6.4 per cent.

Yet it would be wrong to dismiss the numbers altogether. This is especially the case when the most recent RBA board minutes noted the decision to hike at the June meeting was “finely balanced”, and the risks of tipping the economy into recession climb with every additional rate rise.

Talk to financial sector economists, who get paid to predict cash rate moves, and you’ll get much harrumphing about inconsistent messaging from the central bank, which this year has shifted between hawkish and dovish on a sometimes monthly basis.

This apparent flip-flopping just reflects the reality that the RBA board’s job has become much, much harder this year.

The task in 2022 was to get away from virtually zero rates as quickly as possible. It was brute force and a relatively simple decision each month.

In 2023, monetary policy has become an excruciatingly difficult balancing act, where a single slip risks hundreds of thousands of jobs.

The inflation numbers are not unalloyed good news but with the stakes so high, every bit of data is meaningful.