Financial markets are united in forecasting the Reserve Bank of Australia will keep a hold on interest rates at its board meeting next week.
But one leading economist is expecting to see a significant downward revision of the RBA's headline inflation forecasts to reflect the impact of government energy rebates.
Financial markets had been hanging on the result of Wednesday's quarterly CPI data which showed annual inflation had climbed to 3.8% at the end of the June quarter, up from 3.6% at the end of March.
It was the first quarterly rise since annual inflation peaked at 7.8% in December 2022, but the threat of an interest rate rise was defused by the trimmed mean inflation figure, which is seen as a better indicator of underlying inflation.
It came in at 3.9%, lower than the March quarterly reading of 4.0%.
The trimmed mean number, which disregards irregular or temporary CPI changes, is the RBA's preferred measure.
The market had widely predicted an inflation rate of 3.8% but the lower trimmed figure effectively ended speculation of a hike to the cash rate when the RBA board meets next week.
Even the outlier economists calling for an interest rate rise next week now concede the next move in the cash rate will be downwards.
Inflation revision on the cards
Head of Australian economics at CommBank Gareth Aird expects the RBA's headline inflation forecasts will be revised downwards on the back of energy rebates.
The RBA is set to publish the full suite of its updated economic forecasts in its Statement of Monetary Policy on Tuesday afternoon.
Federal and state government energy rebates are expected to have a direct effect on pushing down headline CPI inflation with electricity included in the index's basket of goods and services.
The federal government has rolled out its across-the-board energy rebates as part of the federal budget while the Queensland and Western Australian governments have gifted generous rebates in the lead-up to elections in both states.
CommBank economists calculate the rebates will slash two-thirds of a percentage point off the upcoming September quarter CPI inflation figure.
They forecast this will push the annual rate of headline inflation to "a little under 3%" which is where it will broadly sit for the rest of 2024/2025.
The RBA has repeatedly said its target range for inflation is between 2-3%.
There are also concerns the subsidies and other stimulus merely push the boat out on inflation, given it increases the amount of money floating in the system.
Another central bank cuts rates
Adding to the fervour for cuts, on Friday morning Australian time, the Bank of England became the latest central bank to drop its cash rate, its first cut in four years.
It was a 5-4 decision among board members.
It joins other central banks, including those in Europe, Switzerland, and Canada, in moving to lower cash rates after the post-pandemic spike in inflation.
But it was the pronouncement of US Federal Reserve chairman Jerome Powell on Thursday that captured the attention of global markets.
He indicated a US rate cut could be on the cards at the Fed's September meeting.
Like it or not, Australia's economy tends to move in lockstep with the US.
So when will the RBA deliver a rate cut?
Now that all bets are off for a rate rise, the question once again is when Australians will see a cut to the current cash rate of 4.35%.
Westpac and Commonwealth Bank economists have reaffirmed their forecast of a November rates cut while their big four peers NAB and ANZ are predicting the first downward movement will be in February 2025.
But while Mr Aird tips the RBA will revise down its inflation forecasts, he's not expecting RBA governor Michele Bullock to roll out the same doveish rhetoric of Powell.
Instead, he expects Ms Bullock "to stick to the same script" she has used so far this year: that the board is "not ruling anything in or out" and remains alert to potential upside inflation risks.
The RBA board meets in Sydney on Monday for two days and is due to deliver its cash rate decision on Tuesday at 2:30pm.
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