Bonus: RBA rate cut

Curious about the latest Consumer Price Index data and its impact on interest rates?

Join Money's Michelle Baltazar and Ivan Calhoun, chief economist at Creditor Watch, on our bonus Friends With Money podcast episode.

Get the latest on the recent CPI numbers and the upcoming RBA’s rate decision.

Listen on Apple Podcasts

Listen on Spotify

Money Website

YouTube Podcast Playlist

Email Us: [e-mail]

Get stories like this in our newsletter: bit.ly/3GDirbR

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:01):
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.

Speaker 2 (00:12):
Welcome to Friends with Money. I'm your host, Michelle Baltazar.
Thanks for joining us for this bonus podcast. We have
our guest Ivan Cohun, chief economist at creditor Watch, to
talk about the latest consumer price index data out this week,
what they are and how they might affect the rate
decision of the Reserve Bank due next month. Ivan, thanks

(00:34):
for joining us.

Speaker 3 (00:36):
Thanks Michelle, thanks for having me along.

Speaker 2 (00:38):
Now let's start with the basics. What is the Consumer
Price Index or CPI and has it changed much since
the onset of COVID nineteen Yes, I guess it.

Speaker 3 (00:50):
It's most basic. It's a basket of prices of goods
and services that the typical consumer purchases to think. We
hear a lot about the cost of living. It's effectively
a statistical measure of the cost of living. It has
changed a lot since the start of COVID. If you

(01:11):
went back the five years before COVID, the cost of
living probably went up about two percent a year, low
enough that really not many people notice the changing prices.
But Beginning in late twenty twenty one, the cost of
living really ramped up, and over that period since it's

(01:33):
gone up over twenty percent. So we all know when
we go shopping, when we pay electricity bills, they're much
much higher.

Speaker 2 (01:41):
We are definitely feeling it in our pockets and bank balances.
So now it's fast forward to twenty twenty five and
the CPI data just came out this week. What are
the numbers and what do they mean?

Speaker 3 (01:58):
Well, what we saw to d is the annual rate
of inflation or CPI dropped to two point one percent.
That's the lowest sense before COVID. The more important policy rate,
which is related to the underlying inflation, dropped from to
two point four percent. Now the RBA tries to target

(02:20):
that rate at two point five percent, So it really
means that inflation has moderated back to the target the
Reserve Bank wants, and that means that they can consider
reducing interest rates further at the next board meeting.

Speaker 2 (02:37):
That's just sweet music to my ears. Cutting interest rate.
So we did have a rate cut this year, and
now there's another rate announcement next month. Do you think
this means that there will be another rate cut.

Speaker 3 (02:53):
I think it does mean that there will be another
interest rate cut. The reason is if you look at
the four cut US the Reserve Bank put in place
released in May, they actually forecast unemployment rising, they forecast
slow growth, and they assumed another two interest rate cuts.

(03:14):
If they don't make those intrast rate cuts, they would
actually be predicting that unemployment would be even higher. So
they don't need to allow unemployment to rise when inflation
is low.

Speaker 2 (03:29):
So what is the cache rate right now and what
is the consensus forecast on where it might sit by
the end of the year or next next month.

Speaker 3 (03:40):
Yeah, so it's currently three point eighty five percent. The
expectation in the markets is pretty highly priced, not one
hundred percent price that it will be reduced another zero
point two five of a percent in July net Board
meeting on the eighth of July, and then another point

(04:01):
twenty five in August. So in the next couple of
months it's expected to drop to three point three five percent,
and then the markets are looking for another half of
percent off by early next year. So that's that's the expectation.
It doesn't have to it may not be correct, but

(04:23):
that's what markets expect to happen over the next couple
of months and then over the next six to six
to eight months.

Speaker 2 (04:32):
Ivan, I'm crossing my fingers for that first of three
or four red cuts next month. Thanks for sharing your
insights with us.

Speaker 3 (04:41):
Thanks Michelle, thank.

Speaker 2 (04:43):
You for listening to this bonus episode. Until next I'm
Michelle Baltasar Bye for now.

Speaker 1 (04:49):
Thanks for listening to the Friends with Money podcast. For credible,
independent and easy to understand financial commentary, visit moneymag dot
com dot au. Please remember that the views and opinions
expressed in this podcast are general in nature, and further
independent advice and research based on your personal circumstances should

(05:09):
be sought before making an investment decision.