By Wayne Cole

SYDNEY (Reuters) –

Australia’s central bank is under pressure to ease policy as government measures lower consumer prices while core inflation remains high.

Data for July is expected to show headline inflation returning to the Reserve Bank of Australia’s (RBA) 2-3% target band for the first time since 2021, increasing calls for relief from high mortgage payments.

As the U.S., EU, and Canada ease rates ahead of the RBA’s next meeting on September 24, Australia may stand alone among developed nations in not lowering rates.

Policymakers have countered with a communication strategy, suggesting no immediate rate cuts are likely due to inflation concerns.

Gareth Aird from the Commonwealth Bank noted, “It is hard to recall a period of such a plethora of RBA communication over such a short period of time.” He foresees the cash rate remaining on hold until Q1 2025, though a market probability suggests a 42% chance of a rate cut in September, rising to 84% in November.

Core inflation is predicted to drop from 3.9% to 3.3% in Q3, coupled with a potential rise in unemployment, supporting arguments for a rate cut. However, the headline CPI will likely fall sharply, returning to the central bank’s target due to government support initiatives totaling A$3.5 billion. Goldman Sachs’ Andrew Boak estimates a 0.7% decline in CPI for July alone, potentially reducing annual inflation to 2.7%.

This upcoming data is set to fuel calls for immediate borrower relief, especially as most Australian mortgages are variable.

RBA Governor Michele Bullock has maintained that core inflation is crucial, emphasizing a long-term policy approach. Yet, financial stress is prevalent, with surveys indicating consumer sentiment is at recession-like lows.

Globally, the RBA faces challenges with nearby countries like New Zealand lowering rates recently, and the Fed and ECB expected to follow, potentially leaving Australia’s rates comparatively high ahead of the RBA’s charged meeting on September 24.

Note: Exchange rate is $1 = 1.4826 Australian dollars.