Inflation’s impact: What the new numbers mean for you

Fresh inflation figures are lower than economists expected, but continue to muddy the waters around what consumers and businesses can expect for the rest of 2024.

The latest monthly Consumer Price Index indicator numbers from the Australian Bureau of Statistics showed annual inflation at 3.4 per cent, just as it was for December and January.

It was below economists’ forecasts of a slight monthly rise and is good news for borrowers battling high interest rates, but seems to contradict last week’s official jobs data that showed a surprise fall in the unemployment rate to 3.7 per cent.

Low jobless numbers are historically a sign of a strong economy and put pressure on the Reserve Bank to raise interest rates, but Australia’s GDP is spluttering – going backwards on a per capita basis – and could weaken further as 13 rate rises from the RBA since 2022 crunch confidence and spending.

In this jumble of confusing statistics, it’s worthwhile looking at what the latest numbers mean for households and business owners.

PRICE PAIN CONTINUES

The monthly data shows key costs continue to climb strongly, with rents up 7.6 annually, insurance and financial services up 8.4 per cent and education up 5.1 per cent. Strong rises in bread and cereal products (up 7 per cent) and dairy products (up 4.2 per cent) more than covered small falls in meat and vegetable prices.

Many major expenses show no signs of slipping back to the 2-3 per cent target range for inflation that the RBA wants to see.

The good news is that the painful utility price rises of recent years appear behind us, with electricity up just 0.3 per cent for the year to February, and gas prices down 2.4 per cent.

RATE CUTS UNCERTAIN

If annual inflation remains stuck near 3.5 per cent, there is no way the RBA will cut its official interest rate. It wants to see inflation between 2-3 per cent, and doesn’t mind hurting homeowners when trying to achieve it.

Repayments on a typical $600,000 home loan currently are $1562 a month, or 62 per cent, higher than they were in April 2022, according to Canstar.

Just one RBA cut of 0.25 of a percentage point will wipe $101 a month off that mortgage servicing cost.

But with inflation not budging and significant wage rises flowing through the economy, there’s a chance the cash rate will stay where it is for much longer than expected.

SAVERS CAN CELEBRATE

We won’t be seeing RBA rate cuts before the middle of the year, as some optimistic forecasters were declaring a few months ago.

Savers will be happy to hear that 5 per cent-plus interest rates paid on cash deposits are likely to linger for longer.

Finally, bank deposits are beating inflation, although many people who pay tax on their bank interest are likely still seeing their cash investments going backwards.

MORE JOBS IN JEOPARDY

Persistent inflation combined with strong wages growth is not good for businesses that are being hit on multiple fronts.

They are paying much higher interest rates on their business loans, and the impact of high rates on household income means that customers are spending less. It’s no wonder we are seeing more businesses shut their doors or collapse under financial strain. More business failures means less job security for all of us.