Today’s release of the December quarter CPI figures will provide great relief to both home and business borrowers, as it all but assures them that the Reserve Bank of Australia (RBA) will keep rates on hold at next Tuesday’s Board meeting. Overall inflation fell sharply from 5.4 per cent to 4.1 per cent, indicating that the monetary policy measures the RBA has taken to date are now working well to bring down inflation. Coupled with flailing retail sales (down 2.7 per cent over the month of December) and an unexpected decrease of 65,000 of the number of people employed in December’s unemployment figures, the RBA has next to no reason to apply further pressure to a clearly slowing economy.

While falling inflation is very positive news for the RBA and borrowers overall, operating conditions for businesses over the next six months will remain very challenging. The lag effect of monetary policy impacts is now being felt, and business confidence and conditions are slowing sharply as we move further in to 2024. It is unlikely confidence will return to consumers until there is any real sign of upcoming interest rate cuts, which are still unlikely to occur before the third quarter of this year. An unemployment rate rising more sharply than forecast could convince the RBA to bring cash rate cuts forward in to the second quarter of 2024, and slowing business conditions means there is an ever increasing possibility this could happen.