New inflation numbers reveal good news for home loan borrowers

RBA rate cuts are coming, and you can thank these common household expenses for helping to deliver mortgage relief.

Inflation is heading lower, almost certainly locking in a rate cut.

Borrowers will breathe a sigh of relief at Australia’s latest annual inflation rate, which is heading lower and almost certainly locks in a Reserve Bank rate cut on August 12.

After several years of soaring living costs, some key expenses are now heading in reverse, or at least have stopped their painful price rises that had sent the consumer price index skywards earlier this decade.

Wednesday’s Australian Bureau of Statistics figures show CPI inflation fell to 2.1 per cent in the June quarter, down from 3.8 per cent in June 2024. The trimmed mean measure of inflation – which economists and the RBA watch more closely because it strips out volatility – dropped from 3.9 to 2.7 per cent in the same period.

Inflation now sits comfortably within the RBA’s 2-3 per cent target band, and KPMG chief economist Brendan Rynne said “there’s nothing stopping them” from cutting rates in a couple of weeks.

“We are seeing unemployment rise, we are seeing inflation under control – all the signals are there to take the cash rate down,” Dr Rynne said.

The RBA’s official cash rate is currently 3.85 per cent and has already been cut twice this year – in February and May. Economists are forecasting more cuts.

And borrowers, who had battled a 60 per cent-plus surge in mortgage repayments between May 2022 and early this year, can thank weaker prices in several key household spending categories for bringing on their rate-cut relief.

Firstly, fuel. Petrol prices have dropped 10 per cent in 12 months despite escalating wars in the Middle East.

Electricity prices also have dropped sharply, down 6.2 per cent thanks to federal and state government rebates to households and businesses, although these are now winding down.

The price of international holidays fell 1.2 per cent in the year to June 30. Dr Rynne said the cost of living was still impacting spending decisions and “people are still being very cautious”.

Dig deeper into the latest CPI data and you will find a long list of falling prices over the past year, including urban transport fares, motor vehicles, men’s and children’s clothing, pets, carpets, textiles, garden tools and cleaning products.

The prices of milk, ice cream, pharmaceuticals and children’s shoes were steady, and where prices are not falling, they have at least moderated. Take insurance, for example, which climbed 3.8 per cent annually – a fraction of the pace it was increasing at just a couple of years ago.

Another Reserve Bank rate cut is expected in August. Picture: iStock

Rents are still rising but moderating, the ABS says, up 4.5 per cent in a year, while new home prices were up just 0.7 per cent. Dr Rynne said this reflected tougher competition as “large-volume builders have been struggling to get sales”.

IG market analyst Tony Sycamore said money markets were pricing in a 3 per cent cash rate by March 2026, meaning at least three more 0.25 percentage point cuts.

“Following the disappointing jobs report for June, and a run of tepid growth data, today’s inflation update is the green light for the RBA to cut rates next month, bringing further relief to Australia’s mortgage holders,” he said.

Bendigo Bank chief economist David Robertson said the inflation data “should assure an RBA rate cut in August, and potentially opens the door for a larger cut than the normal 25 basis points”.