David Robertson, Chief Economist at Bendigo Bank, has maintained his long-held view that the Reserve Bank of Australia (RBA) cash rate will remain unchanged throughout the year in his his July Economic Update.

Robertson predicts rate cuts will likely come in 2025, despite disappointing monthly inflation figures in the May data.

According to Robertson, the May data increases the probability of another RBA hike in the coming months, but it further defers RBA cuts. He has adjusted his first RBA cut prediction from February to May 2025 due to slower progress for disinflation than expected.

“There is no doubt the monthly CPI indicator for May was a setback to progress on inflation, with headline CPI jumping to 4 per cent and the core trimmed mean also higher at 4.4 per cent - however some of the detail within the report was less conclusive,” Robertson said.

“As we’ve outlined here and in our Business Insights website since early 2023, we see relief via RBA rate cuts as a 2025 event, so we’re not surprised that markets (and most economists) are no longer pricing in cuts this year, but the market is now assigning around a 50 per cent probability to another hike which is a long bow to draw on a single monthly CPI read.”

Australia is currently implementing Stage 3 tax cuts worth around $22 billion this financial year, along with a range of ‘cost-of-living measures’ in Federal, State and Territory budgets worth close to $30 billion. Robertson notes that the quarterly inflation figure due at the end of this month will provide more insight than the May figures alone.

“How much of this money is spent versus saved will be crucial for imbalances between supply and demand, which will take time to become apparent,” he said.

Inflation has generally been falling around the world, leading to rate cuts in both Europe and Canada. Robertson believes the RBA will consider a broad range of data in reaching their decision and will not lose sight of its dual mandate of price stability and full employment.

“This means upcoming jobs data will be almost as influential as inflation data,” Robertson said.

He noted that economic conditions remain uneven and in some respects contradictory, with record highs for property prices, stock markets and levels of employment. Yet, Australia remains in a per-capita recession and consumer sentiment is lower than it was in the pandemic or the Global Financial Crisis.

“Beyond speculation on interest rates, economic conditions remain uneven and in some respects contradictory,” Robertson said. “But economic uncertainty here and geopolitical risks overseas remain a drag on confidence, so the rebound will likely be in small steps.”

Forecasts for the new financial year still show moderating inflation, helped by base effects and a firmer Australian Dollar, and more moderate gains for house prices.