Why now is a good time to fix

The interest rate environment is unlikely to see significant changes in the near term, largely due to recent inflation trends.

Here are the key points from the latest Consumer Price Index (CPI) data and expert commentary:

• Inflation Surpasses Expectations: The March quarter 2024 Consumer Price Index (CPI) saw a 1.0% increase, resulting in an annual inflation rate of 3.6%. This overshot forecasts from both banks and the Reserve Bank of Australia (RBA).

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• Revised Rate Cut Predictions: In response to higher-than-expected inflation, major bank economists have revised their expectations. Westpac, for example, now anticipates the first rate cut in November 2024, rather than September. Commonwealth Bank and ANZ also suggest that rate cuts will be delayed.

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• Key Drivers of Inflation: The main contributors to this inflation spike are non-tradables and non-discretionary components of the CPI basket, which are less responsive to rising prices. Non-tradables rose by 5% per year, while non-discretionary prices increased by 4.2%.

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• RBA's Approach to Rate Cuts: The RBA is expected to keep rates steady at the upcoming May meeting, with cautious outlooks for the next few months. It will likely require more quarters of lower non-tradables and services inflation to be convinced that overall inflation will return to and remain in the 2-3% target range. Rate cuts might not occur until late 2024, potentially as late as the fourth quarter.

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• Business Impact: High-interest rates can create challenging conditions for sectors like discretionary retail trade, food and beverage, and construction. These sectors may face increased insolvency risks as trading conditions become more difficult with prolonged high-interest rates.

Given these trends, businesses and individuals should brace for a steady cash rate through most of 2024 and adjust their financial planning accordingly.

The path to rate cuts may be longer than initially anticipated due to persistent inflationary pressures.