According to recent data from the Australian Bureau of Statistics (ABS), inflation rates have fallen, leading experts to predict a high likelihood of interest rate cuts starting in February, SQM Research analysis showed.
The December quarter saw a modest inflation increase of only 0.2%, continuing the trend from the September quarter and marking the lowest semi-annual rise since the onset of the COVID-19 pandemic.
This subdued inflation rate suggests the Reserve Bank (RBA) may soon need to adjust interest rates to stay within its target range.
Core inflation, which is often a focal point for RBA’s policy decisions, also showed a minimal increase of just 0.5% for the quarter.
“What all this means is, the RBA is now at risk of undershooting on its inflation target of 2-3% annual inflation,” SQM Research said.
The predicted rate cuts are expected to commence on Feb. 18 with a 0.25% reduction, followed by potential additional cuts in April.
The anticipated rate cuts have led to revisions in economic forecasts, particularly affecting the housing market. Scenario 3, as outlined by SQM Research, predicts a robust recovery across various regions, with significant implications for Sydney and Melbourne markets.
“This recovery could show up as early as February through higher auction clearance rates with prices starting to rise in the June Quarter,” SQM Research said.
Current market activities show a mixed start to the year in auction numbers across major cities, with Sydney, Melbourne, and Brisbane experiencing lower counts compared to last year, while Adelaide and Canberra see an increase.
These trends indicate a cautious approach from vendors in softer markets. However, the potential rate cuts could inject renewed confidence into the market, encouraging both buyers and sellers.
Despite some online speculation about a slow start in cities like Perth and Brisbane, leading indicators have yet to confirm a downturn.
Perth is expected to outperform other cities in 2025, and the overall national market is likely to see positive adjustments in response to the RBA's anticipated policy changes.
See the SQM Research report on LinkedIn.
