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Will the RBA raise rates again? Unless prices surge over summer, it's looking less likely

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
Will the RBA raise rates again? Unless prices surge over summer, it's looking less likely

If you’re looking for clues about whether the Reserve Bank has any interest rate rises left, Governor Michele Bullock offered several in her statement[1] after Tuesday’s board meeting, saying:

  • the latest monthly figures showed inflation “continuing to moderate”

  • inflation expectations remained “consistent with the inflation target”

  • wages growth was “not expected to increase much further”.

The statement reads not only as an account of why the board kept rates on hold this month – as expected, after increasing them in November[2] – but also an account of why it might not need to lift rates again.

Much will depend on “data and the evolving assessment of risks”. The board will make that assessment at its first meeting for the year in February.

Here’s why that next meeting matters so much.

Inflation’s headed in the right direction

The monthly measure of annual inflation has been falling since it peaked in December. Last week we learned that in October it fell from 5.6% to 4.9%[3], meaning it’s now closer to the Reserve Bank’s target of 2-3% than to the December peak of 8.4%.

A few special government measures helped push it down.

An increase in Commonwealth rent assistance[4] decreased recorded rents; energy bill rebates[5] decreased recorded electricity prices; and changes to the childcare subsidy[6] decreased recorded childcare prices.

Those government measures won’t depress future inflation readings, suggesting that from here on inflation might bounce back.

But on the other hand, from here on the very large inflation outcomes recorded at the end of last year will drop out of the 12-monthly figures.

The mathematics of falling inflation

Simple maths suggests that if this year’s November and December readings are like the average of the other readings this year, annual inflation will fall to 3.1%.

The November figure will be released on January 10 and the December figure on January 31. Both will be available to the Reserve Bank board when it meets on February 5 and 6, along with the latest quarterly measure of inflation.

If that quarterly measure is the same as the average of the past two quarters, it will show annual inflation of 4%.

Such outcomes – which are likely if inflation continues along its present trajectory – would see inflation closing in on the Reserve Bank’s target band and relieve it of any need to further lift rates.

Of course, it mightn’t happen. But there’s a lot driving down inflation.

Prices we don’t much notice are falling

The prices we pay attention to are those we see in the supermarket, what we fork out on mortgage payments and household bills, and what we pay at the petrol pump. (Petrol prices have been falling for weeks now[7].)

Prices we notice less are far less troubling than they were.

During 2022, the price of household appliances climbed 8.2%[8]. So far this year it has fallen[9] 2%.

The price of furnishings climbed 5.3% during 2022. So far this year it has fallen 1.6%. The price of clothing climbed 5.4%. So far this year it has fallen 2.6%.

All sorts of prices are coming down, partly because the supply bottlenecks driving them up last year are being reversed and partly because – thanks to 13 near consecutive interest rate rises – we are not buying at anything like the rate we used to.

Retail spending grew by just 1.2%[10] over the year to October – the least since the COVID lockdowns.

Likely population growth of 2.4% and what Westpac believes to be retail price growth of 3.6%[11] means the amount bought per person actually fell 4.5%[12].

Even this year’s more hyped Black Friday[13] spending was up only 0.6%[14] to 1%[15] compared to Black Friday in November last year. Given our population growth was higher than that, it suggests we spent less on those sales per person this year.

Dentistry and haircuts are more expensive

What about the prices that are climbing strongly?

With the exception of rents – up 7.6% over the year – it’s hard to find many.

Dentistry is becoming more expensive. Shutterstock

In a speech after the last Reserve Bank board meeting, Governor Bullock said inflation was increasingly being driven by the price of services[16], which stands to reason given inflation in the price of goods has been ebbing away.

She nominated increases in the prices charged by hairdressers and dentists, as well as restaurants. And there’s definitely something to see there, for dentists[17].

During 2022, the statistician’s measure of the price of dentistry climbed 3.9%.

In the first three quarters of this year, it climbed by that much again, meaning the pace picked up. But the increase is not that much more than the overall increase in wages, suggesting dentistry is not being priced much further out of reach.

Haircuts climbed in price a hefty 6% during 2022 and continued to climb at that pace during the first three quarters of 2023, which is uncomfortable, but at least not accelerating.

The price of restaurant meals climbed 6.7% during 2022 but only 3.8% in the first three quarters of 2023, meaning the pace is easing.

Wage growth a risk, but not yet a worry

The governor is concerned high wage growth will become embedded in the price of services. But at 3.9%, wage growth isn’t particularly high.

About a third of workers are covered by enterprise agreements. Jeff Borland of the University of Melbourne points out the increases in most of the newly-lodged enterprise agreements are flat or trending down. Many of us got a top-up at the start of our three-year agreements, which won’t be continued.

Borland’s statistical analysis[18] suggests individual agreements aren’t pushing up wage growth either, but increases granted by the Fair Work Commission to the 20% of workers on awards are. Yet, by design, these increases reflect, rather than drive, inflation.

If inflation does accelerate over the holiday season, the Reserve Bank probably will push up rates further. But as the governor seemed to acknowledge on Tuesday, it’s not looking likely.

Read more: Inflation now starts with a 4, allowing the RBA to hold fire on rates[19]


  1. ^ statement (
  2. ^ increasing them in November (
  3. ^ 4.9% (
  4. ^ rent assistance (
  5. ^ rebates (
  6. ^ subsidy (
  7. ^ falling for weeks now (
  8. ^ 8.2% (
  9. ^ fallen (
  10. ^ 1.2% (
  11. ^ 3.6% (
  12. ^ 4.5% (
  13. ^ Black Friday (
  14. ^ 0.6% (
  15. ^ 1% (
  16. ^ services (
  17. ^ dentists (
  18. ^ statistical analysis (
  19. ^ Inflation now starts with a 4, allowing the RBA to hold fire on rates (

Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

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