Australians are tipped to be hit with another rate rise when the Reserve Bank board meets on Tuesday, despite the latest figures revealing a drop in inflation.
The central bank has whacked homeowners with 12 rate rises since May last year in a bid to bring inflation down to a target 2-3 per cent.
On Wednesday, the Australian Bureau of Statistics (ABS) revealed the consumer price index had dropped to six per cent, following a peak of seven per cent in March.
But economists from the Commonwealth Bank have suggested the drop is not big enough to force the RBA to hold its aggressive rate hiking cycle for a second month in a row, and that governor Philip Lowe would announce one final increase next week.
In a statement released on Wednesday afternoon, the warned the board, which will soon be chaired by Michele Bullock after Mr Lowe’s axing, could take the “path of least regret”, and bump up the cash rate by 0.25 per cent.
“The lower‑than‑expected June quarter inflation figures raises the possibility that the RBA could downgrade their inflation forecasts, or characterise those risks as skewed to the downside,” the forecast said.
“Given the uncertainty around the path of services and consumer durables inflation, the path of least regret, we expect, is for the RBA is to deliver one final rate hike in August, taking the cash rate to 4.35 per cent,” it said.
Mr Lowe has consistently maintained that his goal, and that of the RBA board, is to see inflation settle at 2-3 per cent.
The next meeting of the board, to be held next week, will be Mr Lowe’s second last.
On Wednesday Treasurer Jim Chalmers said inflation was moderating in “welcome ways”.
The Treasurer said rate increases had helped reduce inflation, but also credited the federal government’s “three point plan”.
Mr Chalmers said this included a government surplus, a cost of living package and investments in the supply-side of the economy.
“We know that we still have a long way to go, we know that people are still under the pump,” he said on Wednesday.
“But today’s numbers represent, I think, welcome progress – inflation is still too high but it’s heading in the right direction.”
