ANZ reckons headline inflation will lift next year as power bill credits end

ANZ believes headline inflation will rise next year as the temporary effects of government cost of living rebates dissipate.

The Consumer Price Index will finish 2024 at 2.6 per cent but will run at 3.4 per cent next year, ANZ said in a note released on Tuesday.

The big four bank said power bill rebates — including programs by the Federal, Queensland and Western Australian governments — would temporarily help cut inflation by about 0.7 percentage points.

Yet the same figure will be added to headline inflation in the following year when the payments end, ANZ said.

The effectiveness of the rebates is debated because consumers can shift their spending to other items.

Rising Commonwealth rent assistance and other measures would also soften price rises “temporarily”.

ANZ said trimmed mean inflation — the Reserve Bank of Australia’s key metric — won’t be impacted by the power rebates and would fall from 3.4 per cent to 2.7 per cent next year.

The RBA targets an inflation rate between 2 per cent and 3 per cent.

Earlier this month the bank punted back the forecast for RBA cutting rates from November to February 2025.

ANZ’s economists pencilled in three cuts next year, which would lower the cash rate to 3.6 per cent.

The trend among most bank and forecasting houses in the past two years has been that projections on interest rate movements were broadly over-optimistic.

Monthly consumer price data is due out on Wednesday and the Commonwealth Bank reckons the annual rate will lift slightly to 3.7 per cent.

Markets were on Monday projecting a 12 per cent chance of a cash rate hike at the next RBA board meeting.