Not yet ready to switch on rates

The inflation beast may be tamed – for now – but global tensions and a stalling homebuilding market are keeping the central bank from starting its rate-cutting cycle.

The latest Deloitte Access Economics business outlook says the Australian economy is in a “holding pattern”.

Deloitte Access Economics partner Stephen Smith (pictured) said the Reserve Bank of Australia probably wouldn’t make a move on official interest rates until November, after it sees the September quarter inflation data.

Deloitte expects economic headwinds will put more than 100,000 Australians out of work and increasing the unemployment rate to 4.6 per cent by the year’s end.

“We see the labour market as more of a concern and wage growth (and therefore services inflation) as less of a concern,” he said.

This would be countered however by more disposable income thanks to the expected tax cuts.

Mr Smith said the housing crisis was a significant worry.

“Australia has not been building nearly enough homes to keep pace with population growth,” he said.

“That’s been true not just since the pandemic but for many years prior to that.”

Deloitte expects the pace of dwelling commencements and, subsequently, dwelling completions will pick up over the next 18 months, but it expects there will be no short-term panacea.

“Correcting Australia’s housing disaster will take years and, unfortunately for many, will require higher house prices in the near term,” he said.

“The cost of land, materials and labour will stay at higher levels, while recent insolvency rates suggest builders will need bigger profit margins if they are to deliver the significant lift in dwellings that governments and the community are crying out for.

“In all likelihood, this is a problem that will get quite a lot worse before it gets better.”