Media Release | 2 August 2023
Commentary from The Agency's Managing Director and Group CEO Geoff Lucas on the RBA's August interest rate decision
The Agency's CEO Geoff Lucas said the rate pause today is good news for the economy.
"It means the RBA has detected movement indicating the previous rate increases have begun to have an impact on the economy, and now wishes to assess more data to ensure the impact continues. The downside to the pause is that it can cause sentiment to improve which sets off further inflationary drivers."
"We’re now seeing a significant increase in residential listings on the eastern seaboard," Mr Lucas said.
"As a result the mini boom in prices over the last quarter has begun to taper, with some markets showing signs of stagnation or even decline. This is a significant shift in momentum as what was a strong seller’s market moves toward equilibrium and toward signs of a buyer’s market in some cases. We believe this shift will continue with further decreases in price growth trending to overall softness later in the year and into the first part of 2024.
In Western Australia, we’re seeing the opposite. What has been an exceptionally strong market is now showing signs of a slight decrease in listings, similar to what occurred the past year on the eastern seaboard. The reduction in supply, strong economy, high liveability, investor demand and growing migration from the eastern states will all serve to ensure continued price stability during a slowing in volumes.
The danger with this rate pause is that whilst the overall inflation data last week was a movement in the right direction, the services inflation component remained strong. It’s this component that is hard to shift and is especially susceptible to a rebound in consumer sentiment.
Worldwide it’s expected that the inflation issue will remain for longer than expected. An increase today would possibly have sent a message that all’s not well and caution is necessary. That could have been helpful in the fight against inflation.
There are a number of factors that suggest inflation is not yet controlled, with energy prices and wages contributing to increased inflation from July. As well as this, rent increases are still not fully reflected in the inflation data. In addition, Australia has the highest amount of savings ‘buffer’ from pandemic stimulus. It’s this buffer that’s keeping the services component of inflation strong. That buffer isn’t expected to dry up until late in the calendar year, around the same time the full impact of the mortgage cliff is being felt, and unemployment begins to rise.
Don’t get me wrong – the CPI movement last week was positive – it’s just that inflationary pressures remain and a further increase would assist in keeping the foot on the throat of inflation. It’s quite possible there will be at least one more rise before Christmas. The data shows monetary policy is beginning to work – and sometimes when the symptoms of an illness are tapering off its good to keep up the medicine – no matter how it tastes.
We have not beaten inflation yet, and it will continue longer until monetary policy takes full effect. We wait in interest at the direction of further economic data and anticipate that at least one more interest rate decision may be necessary to keep inflation in check."