Fuel prices have retreated since the May meeting. Petrol is back below $3 a litre and tensions in the Middle East have eased. That has pulled the near-term inflation peak lower: the Bank now expects inflation to have peaked at 3.9 per cent in the June quarter, down from the 4.2 per cent it forecast in May. The Committee raised rates anyway. With inflation still above the target band and the economy expected to pick up again from the September quarter, it judged that holding the rate risked letting financial conditions ease too far.
The situation differs from 2022 in important ways. Demand today is weak and unemployment remains elevated. But a weak economy has not been enough to pull inflation expectations back down on its own, and at 2.25 per cent the cash rate has been low enough to add to activity rather than restrain it.
The most recent housing data predates today's decision by a month. It shows a market holding steady rather than falling. The national median price slipped 0.6 per cent in May to $775,000, down from April's $780,000, a normal dip as the market slows into winter. Prices were up 1.3 per cent from a year earlier. That is better than March and April, when prices were flat against the year before, but well below the 3.2 per cent annual growth seen in February, which had briefly hinted at a lasting recovery.
Activity is softer than the annual figure suggests. Properties are taking longer to sell, with the median days to sell rising to 47 in May from 43 in April. A market that has not yet found steady momentum now faces a higher cash rate.
A flat market has little cushion against higher borrowing costs. Whether prices hold from here or begin to slip will depend on how much of today's move lenders pass on to mortgage rates, set against the support from a firmer annual figure and cheaper fuel.
At 2.50 per cent, the cash rate is still on the low side. How quickly the Reserve Bank moves again will depend on the June quarter inflation figures, due 21 July, and whether they confirm the price pressure it has acted to contain.
