Australian households under mortgage stress could be set for some relief with a possible rate cut on the way next month. But as the ABC’s Alan Kohler explains, despite falling inflation, there is another key factor, that could be standing in the way.
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00:00This week we'll get the all-important December quarter inflation rate from the ABS, which
00:07a lot of economists and the futures market think will pave the way for a rate cut in
00:12February. But will it? Maybe not.
00:17September quarter core inflation was 3.5%, too high. The monthly number in November was
00:233.2%, which is still above the 2-3% target range. But even if the December quarter core
00:29inflation comes in below 3%, which it probably won't, I don't think that'll be enough on
00:35its own.
00:36As this graph shows, the RBA usually only cuts when unemployment rises. The only times
00:43that didn't happen is in the Asian crisis of the late 1990s, and between 2014 and 2019,
00:51when the cash rate was cut from 4.5% to 0.75%, even though unemployment fell. But that was
00:59because inflation was well below target. It averaged 1.6% for five years. So the Reserve
01:06Bank was afraid of deflation, and was trying to get inflation up. No danger of deflation
01:13this time, and unemployment is not rising, it's falling. It was 4.2% in July, and now
01:19it's 4%. In fact, the labour market is a lot stronger than the RBA expected.
01:26So don't shoot the messenger, but I think this week's inflation number, whatever it
01:29is, is unlikely on its own to bring about a rate cut next month. I think more of us
01:35need to be unemployed.