EDITORIAL: Long road ahead, but there’s reason for optimism

They might not have been stellar, but at least the June quarter inflation figures were in line with expectations.

After all, nasty surprises have become a lot less surprising in recent months as inflation threatens to roar back to life.

But this time around, the consumer price index figure was right in line with expectations, at 3.8 per cent. Yes, it meant inflation had gained pace, but at least that’s what we expected it would do.

And the trimmed mean index, the measure most relied on by the RBA and which strips the more volatile elements from the CPI basket, fell from 4 per cent in March to 3.9 per cent.

Again, not an outstanding result, but it could have been much, more worse.

The upshot is that markets believe it’s unlikely that the Reserve Bank will bump up the cash rate at its meeting early next week, saving homeowners yet more mortgage pain. The odds of a rate hike are now placed at just one in 10.

There’s still a way to go before inflation falls within the RBA’s target range of between 2 and 3 per cent.

But the bank wants to do so without crunching Aussies too hard, which would risk sending the economy into a recession.

And as a closer examination of the CPI figures shows, putting up rates might not help much anyway.

The biggest drivers of inflation in the June quarter were rents, building costs and fruit and vegetables.

None of these are what you could call discretionary spending and they’re all costs which consumer behaviour has no influence over.

It’s beginning to feel once more like the next move by the RBA on rates will be downward — though we will probably have to wait until 2025 for that to happen.

There are reasons for optimism.

US Federal Reserve chair Jerome Powell gave strong indications that a rate cut there will be coming in September.

If that were to eventuate, it would send a signal to the rest of the world — including Australia — that a global recovery was in play, boosting business and investor confidence and lifting the value of our dollar.

And it may even give the RBA the encouragement it needs to do the same, a move that would bring enormous relief to millions of mortgage holders after the brutal two-year tightening cycle.

However while there does appear to be a glint of hope on the horizon, we’re still some way away yet.

The Federal Government’s stage three tax cuts are beginning to trickle into people’s pockets. There’s a danger that after so much restraint, they may give in to the temptation to spend.

Billions in stimulus, including through State and Federal electricity bill relief initiatives, will also roll out to consumers, putting our hard-won inflation gains in danger.

After the RBA’s last meeting in June, its governor Michele Bullock said we faced a “slow grind” to return inflation to the target band.

That’s another prediction that appears to have been spot on.

Responsibility for the editorial comment is taken by WAN Editor Christopher Dore