Industry experts are quietly confident the Reserve Bank of Australia (RBA) will leave interest rates on hold when it next meets, with inflation holding steady.

The latest data from the Australian Bureau of Statistics (ABS) shows inflation has remained steady at 3.4 per cent for the 12 months to January.

That’s the same figure as for the 12 months to December and down on the November figure of 4.3 per cent.

Real Estate Institute of Australia President Leanne Pilkington said the inflation figure was still a step in the right direction.

“Even though the January figure is the same as for the previous month the downward trend in inflation is undeniable, it is the lowest annual inflation since November 2021 and well down on the peak of 8.4 per cent in December 2022,” she said. 

“The annual movement for the monthly CPI, excluding the volatile items of fruit and vegetables, automotive fuel and holiday travel and accommodation, rose 4.1 per cent cent in January, down from 4.2 in December and the all-important analytical series annual trimmed mean inflation was 3.8 per cent in January, down from the 4 per cent increase in December and the lowest since March 2022.

“The thirteen rate hikes by the RBA since May 2022 are slowly but surely stemming the inflation tide.”

Ms Pilkington said the most significant contributors to the annual increase in the January inflation figure was housing (up 4.6 per cent) food and non-alcoholic beverages (up 4.4 per cent), alcohol and tobacco (up 6.7 per cent) and insurance and financial services (up 8.2 per cent).

“Rents increased by 7.4% in the 12 months to January, the same as the annual increase for December 2023,” she said.

“With the latest unemployment figures showing a rise to 4.1 per cent in January, from 3.9 per cent in December, and the first time in two years that the unemployment figure has been above 4 per cent, the lagged response to the successive interest rate hikes are showing up in the CPI.

“As the Secretary to the Treasury said to the Parliamentary Economics Legislation earlier this month ‘the drivers of inflation are normalising…we expect that services inflation has likely peaked and will moderate….as the economy cools’.

“The pointers are that the RBA should keep the lid on further rate rises at its meeting in three weeks’ time and that home buyers can anticipate a rate reduction later this year.”

RateCity Research Director Sally Tindall said while the RBA Governor Michele Bullock has previously warned borrowers another rate hike cannot be ruled out, the latest CPI figures pushed the possibility of this scenario further out of the picture.

The timing for any potential cuts, however, is less clear.

She said the RBA had not presented any firm indication as to the timing of potential rate cuts, however, the big four bank economic teams believe Australia will see at least one rate cut in the second half of 2024, with CBA predicting as many as three before the year’s end.

“While the RBA is unlikely to put too much weight on the monthly indicator, which doesn’t survey the full basket of goods, this is yet another encouraging result it can chalk up on the board,” Ms Tindall said.

“The RBA needs to be “very confident” inflation will return to the target band before it starts changing course.”

“With the cash rate likely to be in a holding pattern until the second half of the year, potentially longer, borrowers should seek out relief for themselves.”

Canstar Group Executive, Financial Services, Steve Mickenbecker said inflation remaining steady at 3.4 per cent was positive news. 

“The inflation rate for January was steady, but with record inflation in early 2023 working its way out of the annual data the return to the target doesn’t look so far off,” he said. 

“The case for further cash rate increases is all but gone and projections for the timing of rate cuts may be brought forward.

“The Reserve Bank will remain reluctant to cut the cash rate too soon and has shown far 

greater faith in quarterly inflation readings. 

“The March quarterly release will come too early to signal a rate cut but the June quarterly release in late July could very much raise borrowers’ hopes.”