Australia’s next interest rate cut may not come as quickly as some borrowers had hoped, with new inflation forecasts pointing to renewed pressure from petrol prices, rents, takeaway food and other household expenses.
The latest forecast from ANZ suggests headline inflation could rise by 0.8 per cent in July, driven largely by an expected 8 per cent increase in petrol prices and seasonal price increases across areas such as domestic travel, clothing and takeaway dining.
For households already dealing with mortgage repayments, rent and rising everyday costs, the outlook is significant.
The bigger question for homeowners, buyers and investors is whether persistent inflation could convince the Reserve Bank of Australia (RBA) to keep interest rates higher for longer.
For the Perth property market, that could have important implications.
Inflation could complicate Australia’s interest rate outlook
The RBA’s interest rate decisions are heavily influenced by inflation.
While the economy has been showing signs of slowing, inflation has not yet fallen consistently enough for policymakers to simply assume that further interest rate cuts are coming.
ANZ expects headline inflation to increase by 0.8 per cent in July.
A significant contributor is expected to be petrol, with prices forecast to rise by around 8 per cent during the month.
That increase is expected to push overall transport costs up by approximately 2.5 per cent in a single month.
For households, higher fuel prices can have a much broader effect than the cost of filling up a car. Businesses facing higher transport and operating costs can eventually pass some of those expenses on through higher prices for goods and services.
This creates another potential source of inflationary pressure.
At the same time, electricity prices are expected to provide some relief.
ANZ forecasts electricity prices will fall by around 2.5 per cent following the introduction of the Federal Government’s new Default Market Offer from July 1.
However, the forecast fall in electricity prices is expected to be outweighed by the increase in petrol and other costs.
Why rents matter for the interest rate outlook
One of the most important figures for the property market is the forecast increase in rents.
ANZ expects rents to rise by 0.3 per cent in July.
On its own, a 0.3 per cent monthly increase may not sound dramatic. However, rental increases can become more significant when they continue over an extended period.
The latest increase is also important because advertised rental growth can take time to flow through to existing leases.
In other words, the rental market can continue contributing to inflation even after the initial increase in asking rents has already occurred.
For renters, this means higher housing costs can continue putting pressure on household budgets.
For the RBA, persistent rental growth can make it harder to conclude that underlying inflation has been fully brought under control.
That is particularly relevant when considering the timing of the next interest rate cut.
The RBA’s preferred inflation measure is the key
Headline inflation can be influenced by volatile items such as petrol.
For that reason, the RBA also pays close attention to underlying measures of inflation, including the trimmed mean.
ANZ forecasts that trimmed mean inflation will rise by 0.34 per cent in July.
Annual core inflation is expected to remain at around 3.5 per cent.
This is arguably more important for the interest rate outlook than the petrol price increase alone.
If underlying inflation remains elevated, the RBA has less flexibility to cut interest rates quickly.
ANZ economists Jasmine Zheng and Madeline Dunk said a monthly trimmed mean result above 0.3 per cent would likely be “uncomfortable” for the RBA and would keep the November meeting live for a potential rate adjustment.
That doesn’t mean a rate cut in November is guaranteed.
Instead, it highlights how closely the RBA will be watching the next round of inflation data before deciding what happens to interest rates.
Could interest rates stay higher for longer?
This is now one of the key questions facing Australian borrowers.
Lower interest rates generally reduce mortgage repayments for borrowers with variable-rate loans and can improve borrowing capacity for prospective buyers.
They can also increase confidence among households considering a property purchase.
But if inflation remains stubborn, the RBA may take a more cautious approach.
That could mean the next interest rate cut is delayed compared with expectations.
For homeowners, this creates continued uncertainty around mortgage repayments.
For prospective buyers, it means borrowing calculations should be based on what is affordable today rather than relying on an expected future rate cut.
For investors, higher interest rates can also affect cash flow and financing costs.
The important point is that interest rate forecasts can change quickly when new inflation, employment and economic data becomes available.
What does this mean for Perth property?
The impact of interest rates on the Perth property market needs to be considered alongside local market conditions.
Interest rates are an important factor, but they are not the only factor determining property prices or buyer demand.
Perth’s property market is also influenced by:
- Population growth
- Employment conditions
- Housing construction
- Rental demand
- Available property listings
- Household incomes
- Migration
- Consumer confidence
- Local housing supply
If demand remains strong while the supply of available homes remains constrained, property values can continue to experience upward pressure even when borrowing costs are relatively high.
This is particularly important for buyers who may be considering waiting for the next interest rate cut.
Should Perth buyers wait for an interest rate cut?
For some buyers, waiting may make sense.
For others, waiting could mean facing a different property market later.
There is no guarantee that a future interest rate cut will automatically make buying a property easier.
Lower interest rates can improve borrowing capacity, but they can also encourage more buyers to enter the market.
If additional buyers compete for a limited number of properties, stronger competition can put upward pressure on prices.
This creates an important consideration for Perth buyers.
A lower mortgage rate does not necessarily mean a cheaper property.
A buyer who waits for an interest rate cut could potentially benefit from lower repayments but face higher purchase prices or increased competition.
That is why buyers should consider the overall market rather than focusing exclusively on the next RBA decision.
Rising rents could encourage some renters to buy
The relationship between rents and property purchases is also worth watching.
When rents continue increasing, the cost difference between renting and owning can change.
For some households, higher rent can strengthen the motivation to purchase a home.
However, the ability to make that transition depends on several factors, including:
- Deposit savings
- Borrowing capacity
- Income
- Existing debts
- Property prices
- Mortgage repayments
- Employment stability
Higher interest rates can make that transition more difficult because buyers may qualify for smaller loans or face higher repayments.
This creates a delicate balance.
Rising rents may encourage some renters to consider buying, while higher interest rates can make it harder for those same households to enter the market.
Construction costs remain another housing challenge
The inflation story also extends to the cost of building new homes.
ANZ expects home building costs to rise by 0.5 per cent in July.
Construction costs are an important consideration for the broader housing market because building new properties is one of the key ways to increase supply.
When construction costs increase, developers and builders may face higher project costs.
Those costs can influence the final price of newly built homes and affect the feasibility of new developments.
For markets experiencing strong housing demand, higher construction costs can add another layer of complexity.
It is therefore important to consider not only interest rates but also the cost and availability of new housing when assessing the property market.
Takeaway food and wages add to inflation pressure
Housing is not the only area contributing to the inflation outlook.
ANZ expects takeaway food prices to increase by 0.7 per cent in July.
The forecast increase reflects businesses passing on higher award wage costs.
While takeaway food may seem unrelated to the property market, it demonstrates the broader nature of the inflation challenge facing households and businesses.
When wages, fuel, transport and operating expenses increase, businesses can face pressure to raise prices.
If these increases become widespread, underlying inflation can remain elevated.
That can make the RBA more cautious about cutting interest rates.
Postal and communication costs are also rising
Postal and communication fees are forecast to increase by 1.6 per cent following Australia Post fee increases.
Again, this is a relatively small component of household expenditure, but it forms part of the broader picture.
The RBA is not looking at one individual price increase.
It is looking at whether inflationary pressure is broad-based or concentrated in a small number of volatile categories.
ANZ’s forecast suggests July could see price increases across a wide range of goods and services.
That is what could make the inflation result more significant for the interest rate outlook.
What about savings and term deposits?
While borrowers are waiting for potential interest rate relief, savers are facing a different challenge.
Canstar data shows that several banks have already reduced their term deposit rates.
CBA and NAB have cut their highest 12-month term deposit rates to 5.15 per cent, while ANZ’s highest rate has fallen to 5.25 per cent.
Canstar says 16 institutions, including Macquarie and AMP, had reduced rates since August 1.
This creates an unusual situation for Australian households.
The economy may be slowing, but inflation remains a concern, while returns on some savings products are already falling.
For borrowers, this means the timing of the next interest rate move remains important.
For savers, it means the return available on cash and term deposits can also change as expectations around monetary policy shift.
Why the November RBA meeting matters
The November RBA meeting is now one to watch closely.
ANZ’s economists have indicated that the latest inflation forecast could keep the meeting “live”.
That does not mean the RBA has committed to an interest rate cut.
Instead, the November decision will depend on the full range of economic information available at the time.
That could include:
- Inflation
- Employment
- Wage growth
- Household spending
- Economic growth
- Housing conditions
- Consumer confidence
The next few months could therefore be important for Australian borrowers and the property market.
What should Perth property buyers watch?
For anyone considering buying property in Perth, there are several indicators worth monitoring.
Inflation
The next inflation figures will provide a clearer picture of whether price pressures are easing or remaining persistent.
Interest rate expectations
Changes in expectations around the RBA can influence mortgage rates, buyer confidence and property demand.
Perth property prices
Local price movements are more relevant to Perth buyers than national averages.
Rental growth
Continued rental increases can affect household affordability and influence decisions between renting and buying.
Housing supply
The number of homes available for sale and the pace of new construction will remain important factors.
Borrowing capacity
Buyers should assess what they can comfortably afford based on current lending conditions rather than relying on predictions of future interest rate cuts.
What could happen if the RBA cuts interest rates?
A future interest rate cut could provide relief for existing mortgage holders.
Lower borrowing costs could also improve borrowing capacity and encourage some buyers who have been waiting on the sidelines to return to the market.
However, the impact would likely vary from household to household.
A borrower with a large mortgage could see a meaningful reduction in repayments, while a buyer with a smaller loan may experience a more modest change.
At the same time, increased buyer activity could strengthen competition for properties.
For Perth, the outcome will ultimately depend on how interest rates interact with local supply and demand.
What if the RBA keeps interest rates unchanged?
If interest rates remain unchanged for longer, some buyers may continue to delay their purchasing decisions.
Higher mortgage costs can reduce borrowing capacity and limit the amount buyers are prepared to pay.
However, a slower market does not necessarily mean falling property prices.
If the number of available properties remains low relative to demand, competition can continue for quality homes.
This is why understanding local market conditions is so important.
The bigger picture for Perth homeowners and buyers
The latest inflation forecast highlights just how interconnected the Australian economy has become.
Petrol prices influence transport costs.
Wages influence business costs.
Rents influence household budgets and inflation.
Construction costs influence housing supply.
And inflation ultimately influences the RBA’s approach to interest rates.
For Perth property owners and buyers, these factors all feed into the broader property market.
The key lesson is that there is no single number that determines where the market is heading.
Interest rates matter, but so do supply, demand, population growth, rental conditions and the availability of homes.
Final thoughts
Australia’s next interest rate cut is becoming less certain as inflation pressures remain persistent.
ANZ’s forecast of a 0.8 per cent rise in July headline inflation, combined with 3.5 per cent annual core inflation, a 0.34 per cent increase in trimmed mean inflation and continued rental growth, could make the RBA more cautious.
At the same time, petrol prices are expected to rise 8 per cent, transport costs by 2.5 per cent, takeaway food by 0.7 per cent and home building costs by 0.5 per cent.
For Perth’s property market, the implications are important but not straightforward.
A delayed interest rate cut could keep pressure on mortgage affordability, but waiting for lower rates does not necessarily guarantee better buying conditions. If rates eventually fall and more buyers return to the market while housing supply remains constrained, competition could increase.
For renters, rising rents remain another important consideration, particularly for those trying to save a deposit and enter the property market.
Ultimately, the next interest rate decision will depend on how the inflation data evolves over the coming months.
Thinking about buying, selling or investing in Perth property? Contact the Holdsworth Real Estate team today for up-to-date local market insights and expert guidance on your next property move.
This article is general information only and does not constitute financial, lending or property investment advice. Interest rate forecasts can change as new economic data becomes available.
