The monthly Consumer Price Index (CPI) rose by 2.3% in the 12 months leading up to November 2024, which is within the Reserve Bank of Australia's (RBA) target range of 2-3%.
This is encouraging news for Australians anticipating the first interest rate cut since May 2022.
Financial market pricing indicates a 78% probability that rates will decrease to 4.10% at the upcoming RBA meeting in February, according to the latest ASX 30 Day Interbank Cash Rate Futures data.
A potential rate cut next month would provide significant relief to homeowners with variable loans, lowering their monthly payments and boosting disposable income.
For prospective homebuyers, reduced loan rates could increase borrowing capacity.
While CPI influences interest rate adjustments, it also serves as a broad measure of inflation across household expenditures such as food, clothing, recreation, and transportation.
Notably, there has been a deceleration in price growth for housing costs, including rents, new dwelling purchases, and utility services.
The annual price increase for new dwellings purchased by owner-occupiers slowed to 2.8% in November, the lowest since July 2021.
This decline is largely due to builders offering discounts and promotional deals to attract customers.
Since the pandemic, new home construction has faced higher costs due to supply chain disruptions, more expensive building materials, and labour shortages.
Although labour availability remains a concern, growth in building material costs, which peaked at 17.3% in June 2022, has dropped to about 1% in the past three quarters.
This reduction has eased pressures on builders, contributing to moderated housing price growth.
Rental growth, another component of the CPI, has also slowed recently.
Despite low vacancy rates and competitive capital city rental markets, slightly increased availability has tempered rent growth, maintaining an annual rate of 6.6% in September.
Additionally, the maximum rate of Commonwealth Assistance has increased, offering an extra 10% to those at the highest assistance level, helping stabilize growth rates.
However, rising living costs, including groceries, utility bills, and clothing, coupled with high interest rates, continue to strain household budgets and influence real estate market activity.
| Category | Sep 23 to Sep 24 % change | Oct 23 to Oct 24 % change | Nov 23 to Nov 24 % change |
| All groups monthly CPI | 2.1 | 2.1 | 2.3 |
| Food and non-alcoholic beverages | 3.3 | 3.3 | 2.9 |
| Alcohol and tobacco | 6.3 | 6 | 6.7 |
| Clothing and footwear | 1.8 | 0.6 | 2 |
| Housing | 1.6 | 0.2 | 1.2 |
| Rents* | 6.6 | 6.7 | 6.6 |
| New dwelling purchases by owner-occupiers* | 4.3 | 4.2 | 2.8 |
| Electricity* | -24.1 | -35.6 | -21.5 |
| Gas and other household fuels* | 3.1 | 4.4 | 5.3 |
| Furnishings, household equipment and services | 0.6 | 1.6 | 1.6 |
| Health | 4.8 | 3.9 | 3.9 |
| Transport | -3.8 | -2.8 | -2.4 |
| Communications | -0.8 | -0.7 | 0.1 |
| Recreation and culture | 2.4 | 4.3 | 3.2 |
| Education | 6.4 | 6.3 | 6.3 |
| Insurance and financial services | 6.1 | 6.3 | 5.5 |
Consumer surveys from realestate.com.au reveal that many buyers and renters have lowered their expectations regarding property type, price, and location. Some have opted to downsize or delay transactions until their financial circumstances improve.
The recent CPI data represents four consecutive months within the RBA's target, suggesting positive signs for the economy.
The RBA will closely monitor the upcoming quarterly CPI figures, due in three weeks, before deciding on potential rate cuts.
The last set of quarterly inflation data in September showed a significant drop into the RBA’s target range for the first time in over three years. A similar outcome on January 29th could prompt a rate cut in February.
An early rate reduction would alleviate financial pressures on homeowners, with the prospect of further cuts throughout the year.
Despite high interest rates, the property market in 2024 outperformed that of 2023, and the realisation of anticipated rate cuts might encourage those hesitant to buy or sell to enter the market.
