The monthly inflation rate has slowed to 3.5 per cent but experts warn that interest rates will likely remain untouched.
The Australian Bureau of Statistics announced the latest result, from the 12 months to July 2024, was down from 3.8 per cent the month before.
The drop was largely thanks to a dramatic fall in electricity prices to 5.1 per cent off the back of government rebates.
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It was the second monthly drop in a row and is currently sitting at a four-month low.
“It’s a promising result but we’re not complacent because we know that people are still under pressure,” Treasurer Jim Chalmers said.
Canstar’s data insights director Sally Tindall warned the trimmed inflation is not a green light for rate cuts.
“The majority of Australian borrowers are on variable rates, and, thanks to sky-high property prices, in many cases, are carrying around supersized debts,” she said.
“This is one of the key reasons why the Reserve Bank didn’t hike the cash rate as high as other central banks, but also why, when it does finally start cutting, it will have a more immediate impact on households.”
The US is looking to cut rates, which has raised questions that Australia will follow. Commonwealth Bank has already preemptively cut its fixed and variable rates.
This is despite Reserve Bank Governor Michele Bullock earlier this month warning that rates would remain unchanged this year.
“Based on what the board knows at present, it does not expect that it will be in a position to cut rates in the near term,” she said.
Bullock stressed that keeping rates steady was necessary to reign in inflation into its two to three per cent target.
The latest annual inflation rise was driven largely by increases in housing of 4 per cent, food and non-alcoholic drinks of 3.8 per cent, alcohol and tobacco of 7.2 per cent and transport of 3.4 per cent.
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Rents increased 6.9 per cent, down from a rise of 7.1 per cent in the 12 months to June.
CreditorWatch chief economist Anneke Thompson said the figures show that Australians are continuing to spend less on non-essential items.
She added there are subtle signs of distress among mortgage holders — as house prices rise dramatically in wealthier areas of Sydney and Melbourne — and businesses — as the average value of invoices is half of what it was this time last year.
Thompson warned that if unemployment continues to rise, the Reserve Bank may be forced to cut rates.
”The unemployment rate will be watched closely now by the RBA, and any indication that it is rising faster than its forecast may give it the impetus to follow overseas central banks and cut the cash rate before the year is out,” she said.
Thompson said the good news is that, either way, the economy is still on track for a “soft landing” out of rate hikes.
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