Inflation sitting on steady

As home owners rest easy.

Australians expected inflation of 4.2% per year over the next two years, a rate unchanged on December and down 0.3% on a year ago. Inflation expectations have been stuck in a narrow band between 4.2-4.5% since November 2016.

Roy Morgan CEO, Michele Levine said the expectation figures are being driven lower by Australians paying off their house.

“For much of this period the Reserve Bank (RBA) has maintained a leaning towards increasing interest rates at some point,” she said. “However, at last week’s monetary policy meeting, the Board softened their stance and moved to a neutral position indicating there was an equal chance of increasing or decreasing interest rates in future.”

The decline in housing prices in the two largest cities, as well as moderating house prices elsewhere, has given rise to increased calls for the RBA to cut interest rates in the near future, Levine said.

An increasing proportion of Australian mortgagors now find themselves in negative equity which is when the value of the loan used to purchase a house is worth more than the current value of the house.

“A further decline in inflation expectations will build pressure on the RBA to follow through with interest rate cuts to stimulate the economy which faces significant uncertainty over the next few months with a NSW State Election and a Federal Election due before mid-year.”

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