CPI figures may leave Aussies waiting for rate cuts

Jan 2025Karen Millers

Mortgage broker and financial expert, Julian Finch, has cautioned against premature optimism for interest rate cuts in February.

“While we’d all love to see rates come down, the reality is that economic conditions are still not aligned with the RBA’s targets for reducing interest rates. It’s essential for home owners and borrowers to plan for high rates for longer,” Finch said.

In the first week of January, the Australian Bureau of Statistics (ABS) released November 2024’s monthly consumer price index (CPI) indicator, which reported a CPI of 2.3 per cent in the 12 months leading to November.

Although ANZ and CBA expect the first cut in February, NAB and Westpac are not expecting the reductions to happen until May.

Finch, founder of Finch Financial, has decades of experience in mortgage brokerage and is renowned for providing guidance to Australians navigating the loan process. Highlighting the current economic landscape, Finch explained several reasons why a rate cut in February is improbable.

Currently, the trimmed mean inflation rate is marked at 3.5 per cent with the CPI inflation figure landing on 2.8 over the September quarter.

Finch emphasised that despite the RBA’s target range of 2–3 per cent, inflation remains high as it continues to exceed 3 per cent, which Finch stated is “making a rate cut premature”.

Alongside this, persistent economic growth and demand are fuelling inflationary pressures, despite previous rate hikes.

Another significant factor preventing rate cuts in February will be the impacts of global monetary policies, particularly in the US and Europe, which remain restrictive, impacting Australia’s economic strategies and limiting RBA’s flexibility.

While beneficial for households, Finch highlighted that rising wages are also contributing to inflation, with the RBA unlikely to cut rates while wage growth continues to be a key factor driving inflation.

In 2024’s September quarter, wages in the public sector rose 0.8 per cent, down from 0.9 and lower than the 1 per cent recorded the previous year.

The RBA stated that wage growth is expected to continue slowing gradually alongside easing in labour market conditions.

February 2025 marks the RBA’s first meeting of the year, but more time is needed to assess the effects of previous rate hikes and updated economic data.

“A rate cut at this meeting is possible but highly improbable,” Finch stated.

Finch urged Australians to prepare for prolonged high interest rates.

“A lot of households have been holding out for February hoping that rates would come down. It just doesn’t look like they will. People need to adjust their household budgets now to account for sustained high mortgage repayments,” he said.

He also encouraged Australians to focus on building financial buffers by reducing unnecessary expenses.

“It sounds simple, but you would be surprised how many people do not bother to cut unnecessary streaming services, fail to shop around on power, insurance and other expenses, and fail to give up things they don’t really need,” he stated.

Finch believes if Australians stay proactive and informed, they can better navigate the ongoing economic challenges and protect their financial wellbeing.

“Talk to a broker and look into alternative loan options. Tinkering with your loan can actually create quite a bit of breathing space,” Finch said.

“Explore refinancing or restructuring options to reduce the financial strain at least until rates start to ease,” Finch said.

Despite all these barriers to lower interest rates earlier than the middle of 2025, Nicola McDougall, chair of Property Investment Professionals Australia, reminded first home buyers that Sydney, Australia’s most expensive city, finished 2024 with moderate price growth.

She emphasised that after nearly two years of high interest rates, home owners and investors are tired of the much-anticipated wait for rate cuts. With rates set to be lowered in the middle of 2025, McDougall highlighted there will be a much-needed increase in investor activity.

Originally Published: Liv Adams | Real Estate Business | 22 January 2025

https://www.realestatebusiness.com.au/industry/29335-cpi-figures-may-leave-aussies-waiting-for-rate-cuts

Licensed by Copyright Agency. You must not copy this work without permission.

We strive to bring accountability, ethics, and education to the property investment industry.

PIPA exists to improve the professional standards of anyone providing property investment advice to consumers. Our voluntary Code of Conduct means that members adhere to a high set of professional standards to help protect consumers. Qualified Property Investment Advisers (QPIAs®) have the highest form of industry-recognised, specialist training and can be trusted to provide tailored and unbiased advice to consumers.

PIPA also regularly produces research, analysis, and publications to help educate our members, media, and consumers about the property investment sector.

By signing up for our newsletter, you will gain access to two of our most valued resources – the Annual Investor Sentiment Survey report and the quarterly PIPA Adviser e-magazine.

2024 Investor Sentiment Survey

The Annual PIPA Investor Sentiment Survey is a rare snapshot of the buying intentions of property investors.

PIPA Adviser Magazine

The PIPA Adviser provides the latest research on market conditions, including forecasts for next year.