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The February figure revealed a second consecutive month of lower inflation but rent was seen as a growing problem.
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RBA must pause rates in response to easing CPI, say experts
30 March 2023
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10 minute read
The RBA must pause interest rates in response to the second consecutive month of reduction in inflation when it meets on Tuesday according to experts.
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ABS head of prices statistics Michelle Marquardt said despite the lower annual increase than January, the CPI was still higher than pre-pandemic levels.
“This month’s annual increase of 6.8 per cent is lower than the 7.4 per cent annual rise reported in January 2023,” said Ms Marquardt.
“This marks the second consecutive month of lower annual inflation, also known as disinflation, from the peak of 8.4 per cent in December 2022.”
CPA Australia senior manager of business and investment policy Gavan Ord said a pause to the rate rises off the back of the improved inflation figures would be a welcome relief for many.
“We know businesses would welcome a pause in rate hikes following 10 consecutive increases,” said Mr Ord.
“Regardless of whether the Reserve Bank increases rates or not next week, businesses are still facing a tough economic environment. Inflation is still high and the previous interest rate rises will continue to have an effect on confidence and spending.”
“In this unpredictable environment even if rates don’t increase next week businesses should not assume the rate hikes are over.”
Australian Chamber of Commerce and Industry chief executive Andrew McKellar agreed and said organisations were still to face the full impact of the already instigated rate rises.
“While still too high, it appears inflation has now peaked and is beginning to return to more sustainable levels,” said Mr McKellar.
“In reaching a decision at its April meeting, it’s critical that the Reserve Bank pause and take stock of the cumulative tightening already in the system.”
“Just like households, small businesses are feeling the pinch of rising rates and are yet to experience the full effect of a 3.5 per cent increase in just 10 months.”
BDO economist and partner Ally Flint said the improving conditions should see the RBA decide to pause the rates at next week's meeting.
“It looks like inflation is weakening more quickly than anticipated, giving every reason for the RBA to pause rate hikes come the next meeting in April,” she said.
Vince Tropiano, a corporate tax partner at Grant Thornton, said the firm was expecting a pause to the rate rises in response to the easing of inflation.
“We would expect that the RBA would pause for increases,” said Mr Tropiano.
“I think it’s appropriate for them to watch and wait – let’s see whether things have started to turn around before pulling the interest rates lever again.”
One of the concerning factors revealed in the February CPI was rent prices continuing to rise and maintaining the annual growth recorded in January.
CreditorWatch chief economist Anneke Thompson said rent's continual growth was a point of consternation.
“The cause for most concern is rents, which is a rare category in which price rises are not moderating,” said Ms Thompson.
“Rents grew 4.8 per cent over the year to February 2023, the same as the month prior. In contrast, the increase in the cost of building a dwelling, while high at 13 per cent year-on-year in February 2023, has moderated since January when it was 14.7 per cent.”
“Unfortunately for renters, it is likely that these price increases will stay elevated as the housing supply cycle moves to an abrupt slowdown once the stock under construction completes.”
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