Rate relief in sight as inflation drops to 4.1 percent
CBA head economist says CPI came in well below the Reserve Bank’s forecast of 4.5 percent
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Inflation fell to a two-year low of 4.1 percent per annum in the December quarter, according to figures released by the Australian Bureau of Statistics. This is well below the Reserve Bank (RBA) forecast of 4.5 percent, with CBA’s head economist Gareth Aird saying it “should be a straightforward decision” for the RBA to keep rates on hold at its first meeting for 2024 next week.
Michelle Marquardt, ABS head of prices statistics, said the consumer price index (CPI) rose 0.6 percent in the December quarter, which was the smallest quarterly rise since the March 2021 quarter. Annual CPI has now fallen from a peak of 7.8 percent in the December 2022 quarter to 7 percent in the March 2023 quarter, 6 percent in the June quarter, 5.4 percent in the September quarter and sharply lower to 4.1 percent in the December quarter.
The most significant price rises in the December quarter were for tobacco, up 7 percent following the introduction of the 5 percent annual tobacco excise indexation; domestic holiday travel and accommodation, up 3.9 percent; and insurance, up 3.8 percent. “The increase in insurance was due to higher premiums across motor vehicle, house and home contents insurance,” Ms Marquardt said. “Over the past twelve months, insurance rose 16.2 percent, making it the largest annual rise since March 2001.”
Housing costs rose by 1 percent over the quarter, driven by new dwellings purchased by owner–occupiers, up 1.5 percent; rents, up 0.9 percent; and utilities, up 0.6 percent. “Higher labour and material costs contributed to price rises this quarter for construction of new dwellings, Ms Marquardt said. CoreLogic head of research Eliza Owen commented that rental inflation “is finally slowing, suggesting some hope for tenants that the rental market could turn a corner in 2024, which is also indicated by CoreLogic rent measures”.
Annual goods inflation continues to moderate faster than services. December was the fifth consecutive quarter of lower goods inflation, down from a peak of 9.6 percent in the September 2022 quarter to 3.8 percent in the December 2023 quarter. Prices have even fallen in some categories over the past 12 months, such as clothing, footwear, furniture and household appliances. Annual services inflation eased for the second consecutive quarter, down from a peak of 6.3 percent in the June quarter to 4.6 percent in the December quarter.
Federal Treasurer Jim Chalmers said the government’s cost-of-living relief measures were directly contributing to a reduction in inflation. “Our cost of living policies took half of a percentage point off inflation through the year to December quarter 2023,” Dr Chalmers said. The ABS figures show that over the year, electricity prices rose 6.9 percent but would have risen 18.9 percent without the Energy Bill Relief Fund rebates. Childcare prices fell 7.2 percent but otherwise would have risen 13 percent.Rents rose 7.3 percent but would have risen 8.9 percent without the largest increase to Commonwealth rent assistance in 30 years.
Mr Aird said the inflation data would be “viewed favourably by policymakers”. He added: “The fall in the rate of inflation over the past year has been swift. The job of returning inflation to the 2-3 percent target band is not yet done. But the RBA is now on the home straight. We continue to expect an easing cycle commencing in September. We have 75bp of rate cuts in our profile in late 2024 and a further 75bp of easing in H1 25, which would take the cash rate to 2.85 percent.”
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New detached-home sales fell 10% nationally in August, led by a 27% decline in Victoria, raising concerns about construction starts in 2027.
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Australia’s hoped-for recovery in housing construction is losing momentum before it has had time to close the national supply gap.
Sales of new detached homes fell 10 per cent nationally in August, according to the Housing Industry Association’s survey of major volume builders across the five largest mainland states. It was the fourth consecutive monthly decline.
The fall was broad rather than isolated. Victoria recorded the largest retreat, down 27 per cent, followed by Queensland at 20.2 per cent, New South Wales at 17.5 per cent, South Australia at 10.8 per cent and Western Australia at 8.2 per cent.
Across the three months to August, sales were 19.3 per cent below the preceding three-month period and 7.7 per cent lower than the equivalent period a year earlier.
New-home sales matter beyond the immediate fortunes of volume builders. They are an early indicator of future starts: buyers sign contracts, finance is finalised, approvals are secured and construction follows months later. A sustained sales decline during the middle of 2026 is therefore likely to weaken commencements during 2027.
The slowdown reflects the collision of several pressures. Households have absorbed multiple interest-rate rises, reducing borrowing capacity and increasing the repayment cost attached to a new build. Established-home prices have softened in some markets, weakening the relative appeal of waiting through a construction period. Builders continue to face elevated labour and material costs.
The Reserve Bank’s August analysis showed new-dwelling construction prices increased 1.8 per cent during the June quarter and 5.3 per cent over the year. It attributed part of the pressure to oil-derived building products and other conflict-related costs.
Policy uncertainty can also cause buyers and investors to defer large commitments. But the precise contribution of any single tax or regulatory change is difficult to isolate from rates, confidence, land prices and construction costs. The HIA survey should be read as an indicator from large builders rather than a complete count of every dwelling sale.
The figures complicate progress towards the Housing Accord target of 1.2 million homes. The National Housing Supply and Affordability Council reported 308,000 completions since the Accord began and 244,000 dwellings under construction in the March quarter. Approvals and commencements had improved, but falling sales risk undermining the next wave.
For developers and governments, the warning is that planning approvals alone do not create homes. Projects need finance, viable construction pricing and buyers able to settle. If one part fails, approved supply can remain on paper.
Data box
National August new-home sales: Down 10 per cent
Three months to August: Down 19.3 per cent from the preceding three months
Year-on-year three-month comparison: Down 7.7 per cent
Victoria: Down 27 per cent
Queensland: Down 20.2 per cent
New South Wales: Down 17.5 per cent
South Australia: Down 10.8 per cent
Western Australia: Down 8.2 per cent
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