Key takeaways:
- Inflation has dropped to 2.4%, lower than expected
- Core inflation is slowing, now at 3.2%
- Markets expect the Reserve Bank of Australia (RBA) to cut rates on Feb. 18
Australia’s inflation is finally cooling down, and that’s big news for small and medium-sized businesses (SMEs). With the cost of living pressures easing, there’s hope that interest rates might also drop soon—giving businesses some much-needed relief.
The latest data from the Australian Bureau of Statistics (ABS) shows that consumer prices only rose by 0.2% in the last quarter, less than expected. This means inflation is now sitting at 2.4%, within the RBA’s target range for the first time in years.
With inflation easing, financial markets are betting that the RBA will cut interest rates from 4.35% to 4.10% at its next meeting on Feb. 18. That would be the first rate cut since the pandemic, making borrowing cheaper for businesses looking to invest or manage cash flow.
Australia’s underlying inflation rate falling to a three-year low is a welcome sign of easing economic conditions, and now all eyes are on the Reserve Bank of Australia to reduce interest rates next month to ease mounting cost-of-living pressures. While a rate cut may be on the horizon, it is anticipated to be a modest 0.25%. Although this is a step in the right direction, Australians are unlikely to notice any significant savings until the second half of this year.
Daniele Iezzi, Group Retail Director, APAC
Lower costs, better stability?
A big reason for the drop in inflation is lower housing costs, with both home prices and rent growth slowing. This, along with falling goods prices (now at their lowest since 2016), means small businesses may soon see relief in their operating expenses.
Today’s CPI reading is welcome news for Aussie SMBs and consumers looking for hints that inflation is easing. While the news is encouraging, it may not quite be enough to prompt the RBA to cut interest rates at their next meeting in February, although analysts are increasingly pricing in a cut
Luke Fossett, General Manager at GoCardless Australia and New Zealand
At the same time, services inflation is still at 4.3%, which means businesses in hospitality, healthcare, and other service sectors are still facing cost challenges. But overall, the trend suggests pricing pressures are easing across most industries.
What this means for SMEs
If the RBA cuts rates, it could be a game-changer for SMEs. Lower interest rates would mean cheaper loans, better cash flow, and possibly increased consumer spending as households feel more comfortable with their finances.
Although cost-of-living remains high for Australians, the latest Consumer Price Index shows some inflation relief, indicating that consumers may start to spend a bit more on non-essential items. However, despite retail turnover showing slight growth in November, the -1.4% YoY decline shows we’re still in a retail slump. Retailers must focus on improving their supply chains and optimizing returns processes to maximize profit margins during this economic slowdown
John-David Klausner, Senior Vice President of Business Development, Loop
On the flip side, the job market remains strong, with unemployment at just 4.0%. While that’s great for job seekers, it could mean wage pressures continue for businesses. Skilled migration has helped balance things out, but small businesses should keep an eye on labor costs.
Businesses will breathe a sigh of relief looking at today’s Consumer Price Index, knowing that inflation is trending towards a three-year low. This critical figure suggests a potential easing in operating costs is on the horizon, while the employment market is also showing signs of stabilisation after more than a year of disproportionate growth. As we navigate these economic headwinds, the focus must shift towards policies and solutions that foster employment stability while addressing affordability challenges for both businesses and workers
Ben Thompson, CEO and Chief Economist, Employment Hero
What’s next?
With an election coming up, the government would welcome a rate cut to ease financial pressure on businesses and households alike. But the RBA will be careful—it wants to make sure inflation stays under control before making any big moves.
Today’s CPI report is great news for mortgage holders and home buyers with expectations of an interest rate cut in the first quarter of 2025 now greatly enhanced. Rate cuts in the first half of 2025 combined with lower housing costs will support both the demand and supply side of the market through 2025
Oliver Hume Chief Economist Matt Bell
There was a lot to like in today’s CPI release beyond the slightly better than consensus reading for the core CPI. Lower rates of price increases for insurance, food, electricity, and new houses will strengthen the RBA Board’s confidence that inflation will return to target by the second half of 2026. If current trends continue, that target may even be reached earlier than expected, allowing for a modest recalibration of interest rates starting in mid-February
CreditorWatch Chief Economist, Ivan Colhoun
For SMEs, now is the time to review finances, explore growth opportunities, and prepare for potential changes in interest rates.
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