Up until recently, the market has lacked certainty on the direction of interest rates.

While some economists felt an interest rate cut was imminent, others thought we may even have had a rate hike at the last Reserve Bank meeting,

But that seems to be behind us now, with the latest inflation numbers, which came out last week, showing inflation dropping to 3.5%.

In fact, this had some people asking:

Does this mean interest rates are coming sooner rather than later?

Especially when they hear that interest rates are likely to be cut in the United States this month, in September, and that central banks around the world are likely to start dropping interest rates as international inflation seems to be coming under control.

To understand what the latest inflation figures really mean, in particular with regard to interest rates, watch my weekly Property Insiders chat with Australia’s Dr Andrew Wilson, chief economist of My Housing Market.

July Inflation falls

What’s this week’s Property Insider video as Dr Andrew Wilson explains how the monthly Consumer Price Index (CPI) rose 3.5 per cent in the 12 months to July 2024, which is down from a 3.8 per cent rise in the month of June.

However, the Reserve Bank places more emphasis on the annual underlying inflation figure, which strips out many of the variable factors. In June, this fell to 3.7% from 4.0%.

Dr. Wilson explains that while inflation is clearly heading in the right direction, it’s too early for the RBA to consider an interest rate drop.

Economists for the big four banks have all cast their predictions for the next series of cash rate movements (even though we know how inaccurate their forecasts have been):

• CBA expect 5 x 0.25% rate cut starting in November 2024
• Westpac is forecasting 4 x 0.25% rate cut starting in February 2025.
• ANZ expects 3 x 0.25% rate cut starting in February 2025
• NAB forecasts  5 x 0.25% rate cut starting in May 2025

Back to the inflation numbers, the most significant contributors to the annual rise were Housing (+4.0% – down from 5.5% the previous month), food and non-alcoholic beverages (+3.8%), Alcohol and tobacco (+7.2$), and Fuel (+3.4% –  down from 6.6% in the previous month).

Leigh Merrington, ABS acting head of prices statistics, said:

“CPI inflation is often impacted by items with volatile price changes like in Automotive fuel, Fruit and vegetables, and Holiday travel.

It can be helpful to exclude these items from the headline CPI to see underlying inflation, which was 3.7 per cent in July, down from 4.0 per cent in June.”

Retail sales were flat in July, following two months of strong increases

Clearly, there are more of us in Australia, and inflation has pushed up prices, yet retail sales figures with flat for the month of July.

Watch this week’s Property Insider chat as Dr Andrew Wilson gives you his thoughts on consumer spending

It is likely that there will be a pickup in household consumption for the rest of the year as real income growth turns positive, and as the tax cuts and other government subsidies take effect.

However, it is still up for debate the extent to which households will choose to save or spend their increased disposable income.

Ben Dorber, ABS head of retail statistics, said:

“After rises in the past two months boosted by mid-year sales activity, the higher level of retail turnover was maintained in July.”

Clothing, footwear and personal accessory retailing (-0.5 per cent) had the largest fall, followed by department stores (-0.4 per cent) and cafes, restaurants and takeaway food services (-0.2 per cent).

Household goods retailing and other retailing were both unchanged (0.0 per cent).

The fall in turnover for clothing and footwear retailers and department stores came after higher spending during recent mid-year sales events.

Household goods retailers held onto large gains in turnover in recent months.

The only industry that had a rise in July was food retailing (0.2 per cent).

Winter auction markets conclude on the rise

The winter weekend auction market concluded on Saturday with yet another weekend of rising auction numbers and auction sales.

The national weekend auction market reported a clearance rate of 67.6%, which was higher than the 61.7% reported over the previous weekend, but it was still below the 72.1% recorded over the same weekend last year.

National auction numbers were higher again at the weekend with 2205 listings versus the previous weekend, 2072, and remain well above 1843 listed over the same weekend last year.

Auction sellers can expect more positive results over the coming weekends, with the spring selling season officially underway and solid confidence on the rise.