Recent inflation figures have arrived below economists’ expectations, further complicating the economic outlook for consumers and businesses alike in 2024.

According to the latest monthly data from the Australian Bureau of Statistics, the annual inflation rate stands at 3.4 per cent, consistent with the figures reported in December and January. This outcome, contrary to economists’ predictions of a slight uptick, presents a mixed picture for borrowers contending with elevated interest rates. However, it appears to conflict with recent official job statistics indicating an unexpected decline in the unemployment rate to 3.7 per cent.

While historically low unemployment rates typically signal a robust economy and may prompt pressure on the Reserve Bank to raise interest rates, Australia’s GDP trajectory is concerning. The economy, particularly on a per capita basis, is faltering, and this trend could exacerbate as the 13 interest rate hikes implemented by the RBA since 2022 dampen consumer confidence and spending.

Amidst this maze of data, it’s essential to dissect what these latest figures signify for households and business proprietors.

CONTINUED PAIN FROM PRICE INCREASES

Monthly indicators demonstrate persistent rises in crucial expenses, with rents climbing by 7.6 per cent annually, and insurance and financial services marking an 8.4 per cent increase. Moreover, education costs have surged by 5.1 per cent. While bread, cereal, and dairy products have seen notable price hikes, the escalation in utility prices, a source of recent financial strain, appears to have tapered off, with electricity rising just 0.3 per cent and gas prices declining by 2.4 per cent for the year to February.

UNCERTAINTY AROUND RATE CUTS

With annual inflation hovering around 3.5 per cent, it’s improbable that the RBA will opt for an interest rate cut. The central bank aims for inflation within the 2-3 per cent range and is willing to tolerate homeowner discomfort to achieve this goal. While a rate cut could significantly alleviate mortgage servicing costs, the persistently high inflation and substantial wage growth may delay such actions.

REPRIEVE FOR SAVERS

Forecasts of RBA rate cuts in the near term are likely premature. Savers can find solace in the expectation that interest rates above 5 per cent on cash deposits will endure for some time. However, despite this positive development, individuals subject to tax on bank interest may still find their cash investments falling short against inflation.

HEIGHTENED JOB INSECURITY

The combination of enduring inflation and robust wage growth poses challenges for businesses grappling with rising interest rates and subdued consumer spending. As businesses face mounting financial pressures, closures and collapses are increasingly common, exacerbating job insecurity for the broader workforce.