Shock image shows why the worst will return – realestate.com.au

This picture should be a warning to anyone who thinks they can navigate when it comes to housing and the cost of living, with the worst set to come back.

An updated chart released by the Reserve Bank of Australia shows its economists expect all gains made in reducing inflation levels this year to be wiped out next year when inflation rises again.

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PRD Real Estate Chief Economist Dr Diaswati (Asti) Mardiasmo was among those with raised eyebrows at the RBA’s latest inflation forecasts contained in its August monetary policy statement.

“Eek, look at that slight increase predicted for the end of this year and a sharp increase predicted for 2025,” she said. “In May, the SMP predicted we would reach a target health rate of 2-3% by the end of 2025. Now it looks like it won’t be until the end of 2026.”

Comparing the two graphs – from the May SMP and the August SMP – shows “quite a big change in the space of three months”, Dr Mardiasmo said.

“It’s all smooth sailing in the stable and then it goes down in May,” she said. “But the one in August tells a different story.”

This, as some began to celebrate the second consecutive monthly decline in the Consumer Price Index – the latest figures show it hit 3.5% for the year to July, down from 3.8% in June. Core inflation, which the RBA prefers to track, was 3.8% in July (down from 4.1% in June).

But much of this is due to cheaper electricity after government cuts were introduced. Prices fell 5.1 per cent in the year to July after rising 7.5 per cent in June, according to RateCity.com.au money editor Laine Gordon.

“Australia is making good progress in the marathon tackling inflation, however, even with two consecutive monthly price declines, the race is not yet won.”

The RBA’s chart is a warning to consumers, home owners, borrowers and everyone in between to be cautious in their spending patterns, even if inflation miraculously falls to 3% this year – because a rebound is expected of growth.

Dr Mardiasmo said “for those who haven’t bought (property) yet, now would be an ideal time before they are at a double disadvantage”.

She said the first downside was “the potential for the RBA to raise the cash rate – which is usually with higher rates of inflation – meaning you can borrow less”.

The second was “everything else costs a lot more – which means you may have to dip into your savings or ‘give up’ some of the savings you were planning to use for a deposit.”

In its explanation of changes in headline inflation for August, the RBA said that “over the next two years or so, the differences between forecasts for core inflation and headline inflation primarily reflect changes in government policies to provide a reduction in the cost the lives of households”.

“Year-end headline inflation is projected to be three-quarters of a percentage point lower than average inflation in the September 2024 quarter. Most of this difference can be attributed to the recent introduction of new state and federal energy cuts.”

“In contrast, the year-end headline inflation rate in 2025 is projected to be nearly 1 percentage point higher than the reduced average inflation rate, reflecting both the statutory repeal of the 2024 electricity rebate and an increase in the federal tobacco excise tax” .

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