Inflation continued to ease in the December quarter with a modest increase of 0.6% for the quarter and an annual increase of 4.1% for the year. These numbers are a far cry from 12 months ago when inflation was nearing 8%. The fall in inflation is a clear indication that the increase in interest rates is having the desired effect with Australians moderating their demand for goods.

The question arises: Is there light at the end of the tunnel, or just a train heading our way? – The RBA remain bullish that inflation is still too high and hasn’t ruled out future increases especially with the continued high levels of employment. That being said, inflation continues to trend towards the long-term target range and we would expect to see interest rates cuts begin when we enter the target zone to avoid slowing the economy unnecessarily. The market commentary has a general consensus that the probability of rate cuts will increase in the second half of the calendar year.