Interest rates likely to hold until May, economist says

The latest inflation data supports keeping official interest rates steady in December but suggests cuts could begin by May 2024, according to Bendigo Bank’s chief economist.

The Consumer Price Index rose 2.1% annually in October, remaining unchanged from September.

“The 2.1% annual rise in the CPI indicator for October was below consensus and maintained the same pleasingly low rate as the previous month, but was driven primarily by electricity rebates,” Bendigo Bank Chief Economist David Robertson said.

Underlying inflation measured by the ‘trimmed mean’ reached 3.5%, indicating more progress is needed before rate cuts begin.

Markets have scaled back expectations for February rate cuts, now aligning with forecasts for easing to begin in May.

Robertson said household disposable income should improve in 2025 as tax cuts and moderating inflation provide relief.

The bank forecasts an initial 35 basis point cut to 4.0% in May, following New Zealand’s central bank which reduced rates by 50 basis points to 4.25%.

While Donald Trump’s latest tariff threats have added market volatility, Robertson said these were unlikely to influence the Australian economy or RBA decisions in the next six months.

The next quarterly inflation figures will be released on January 29.