Lowered inflation paves way for rate cut

Last week saw the Australian Bureau of Statistics release the Consumer Price Index for the September 2011 quarter.  In good news for home owners and prospective borrowers, the measure, which serves as the official inflation data referred to by the Reserve Bank of Australia when setting the official cash rate, was unexpectedly low. 

The September quarter saw the CPI rise by 0.6 per cent, down from the 0.9 per cent rise seen in the June quarter 2011.  Over the year to September 2011 the CPI rose 3.5 per cent, while the year to June 2011 saw it rise by 3.6 per cent. 

According to the ABS, price increases were largest for electricity, international holiday travel and accommodation, rents, water and sewerage, and property rates and charges.  These were balanced most significantly by a decline in the prices of pharmaceutical products, audio, visual and computing equipment, automotive fuel, vegetables, motor vehicles and fruit. 

Such a decline in inflation may be the green light the Reserve Bank needs to lower the official cash rate when it meets this week.  While there are many other factors that also need to be taken into account, it seems that a number of experts are in agreement that this is indeed what the RBA Board will elect to do, given that this measure now sees inflation fall healthily within the lower bracket of the RBA’s target range of 2 to 3 per cent. 

A rate cut, potentially from 4.75 per cent to 4.5 per cent, would no doubt bring relief to many home owners, reducing their monthly interest payments.  It would also likely see increased interest in the residential property market from buyers, buoyed by the downward movement in rates.

Home owners and prospective borrowers must remember, however, that relief hinges on a, whether the RBA moves to cut rates which is remains uncertain, and b, whether the banks pass on the lower rates to their customers. 

All in all this week is set to be a very interesting one for the property market.  And with the RBA set to meet on Melbourne Cup day, I’m sure that the outcome of the horse race is not the only news that many Australians will be waiting for.  Having said this, I wish everyone the best of luck – I hope you picked a winner!

 

Posted by Charles Tarbey on 02/11/2011 at 9:24 AM | Categories:

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